Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 2 - Evidence, February 5, 2003
OTTAWA, Wednesday, February 5, 2003
The Standing Senate Committee on Foreign Affairs met this day at 3:37 p.m. to examine and report on the Canada — United States of America trade relationship and on the Canada — Mexico trade relationship, and to consider a draft agenda.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Welcome to the committee. I would ask Mr. McAlpine to please proceed.
Mr. Rory McAlpine, Acting Director General, International Trade Policy Directorate, Agriculture and Agri-Food Canada: Honourable senators, it is a pleasure to be here and to speak about the Canada-U.S. trade relationship as it pertains to agriculture.
As honourable senators will be aware, the free trade agreement of 1989 and then the NAFTA means that we have had more than 10 years of free trade. The past 10 years has seen a significant growth in our bilateral agricultural trading relationship with the United States.
In 1988, just before the free trade agreement came into effect, our agri-food trade exports to the U.S. were valued at $3.4 billion and our imports of U.S. agri-food products were valued at $4 billion. Between 1988 and 2001, our exports have increased to $16.6 billion — almost a 400 per cent increase. Our imports have grown to $12.3 billion. As a result, we have become a significant net food exporter to the United States with a trade surplus in agriculture of $4.3 billion.
We have become each other's most important agriculture and food export markets. In the last year, the United States sold more agricultural products to Canada than they did to Japan. This growth has also been accompanied by a growth in investment flows and an increasingly integrated situation with respect to many factors, including supply chains and other aspects of the economic situation.
Here are just some examples of the success stories I could mention. We now have in Canada a world-recognized wine industry despite predictions that our wine industry would disappear completely under free trade. We have a hugely successful greenhouse-tomato industry in Canada, with exports of $275 million to the United States. This is a 70-fold increase since free trade.
In 1988, frozen french fry exports were slightly over $27 million; last year, that figure was almost $600 million. We have had a tenfold increase in confectionary products, with exports to the United States now exceeding $1 billion per year.
Most of the trade that occurs does flow unimpeded, particularly with respect to value-added products. However, with respect to some other issues, we do face some irritations. In the U.S. hog and cattle industries, there has been a long history of concern about Canadian imports, a concern that has resulted in various trade actions from time to time. These are extensions of the kinds of complaints that existed in the mid-1980s, and they stem mostly from anxiety about ever-increasing imports from Canada.
Perhaps most noteworthy of the shift that has occurred in trade patterns as a result of the NAFTA is the flow of Canadian wheat to the United States. From the beginning, U.S. producers, particularly in North Dakota, have demonstrated difficulty in accepting the increased levels of wheat imports from Canada, and they have been attacking Canadian grain marketing practices ever since. At the present time, the Canadian Wheat Board and the Government of Canada are engaged in an U.S. countervailing duty and anti-dumping investigation. We also are involved in consultations with the United States under the World Trade Organization dispute settlement procedures, with the possibility of a panel looming.
All of this is to say that growth in our trade has been strong, but it is not without friction and challenge. One important development has been the heightened U.S. focus on security following the events of September 11. In relation to biosecurity in particular, Americans have an increasing concern about threats to their agricultural resources and food supply. Mr. Haddow may want to speak more about that.
We have had a successful process under the Ridge-Manley initiative with respect to smart borders. However, there is a separate piece of legislation in effect, the U.S. Bioterrorism Act of 2002, which is posing a serious threat to trade in agriculture and agri-food products. This is significant from the perspective that we have 130 land border crossing points with the United States. Thousands of trucks cross the borders in both directions every day and much of that trade occurs on a just-in-time basis.
In terms of farm policy, our preoccupations recently have centred on the U.S. farm bill, which took effect last summer. Much to our dismay, and the dismay of many other countries, the U.S. legislation has locked in high levels of agricultural subsidies. In fact, subsidies that previously were being delivered in an ad hoc way are now locked in for the next six years.
Our concerns about the farm bill relate to its potential to seriously distort the terms of competition in international markets and the unhelpful signal it sends to the WTO negotiations on agriculture.
In the past few months, the drought-induced higher levels of prices for many commodities have helped to mitigate the effects of the bill. For example, higher prices mean that payments under loan programs have been lower than they otherwise would have been; however, the threat to the long-term stability of global agricultural trade remains.
One of the key elements of the farm bill that is of concern to us is the provision related to country-of-origin labelling for various products. At present, this measure is voluntary, but it will become mandatory in September 2004 unless the legislation is modified. This has the potential to seriously impact our trade in commodities like beef, pork, fruits and vegetables, and fresh fish. We are continuing to work closely with the agricultural industry in Canada, with trade groups and the provinces in an effort to have this legislation overturned.
In terms of where we are headed, I can say that the agriculture policy framework that will be implemented in the new fiscal year has moved our sector in Canada away from trade-distorting subsidies and crisis management. It gives us a basis to encourage the U.S. to think seriously about alternative ways to help their sector.
As part of our agriculture policy framework, we have taken on an active advocacy campaign. We are aggressively promoting our interests with respect to market access and trades in the United States in agriculture by trying to influence U.S. legislators and industry groups to understand the benefits of North American market integration.
We also are committed to market development in the United States, with new resources being applied to more strongly brand Canada and Canadian agricultural products. As part of that initiative, we have a new mandate for seafood promotion and will be creating a new seafood specialist position at our consulate in Boston.
We continue to work effectively with the United States in various consultative forums. We have a successful mechanism, called the Canada-U.S. Consultative Committee on Agriculture, which meets every six months to deal with a range of agri-food trade issues. In addition to meeting at the deputy minister level, we have an active engagement between the provinces and U.S. states on agricultural trade issues. We also have many bilateral industry working groups in sectors like potatoes and tomatoes, and these are proving to be very effective in sharing information.
Mr. Chairman, those are my comments on the U.S. I can now give a few comments about our trade with Mexico.
[Translation]
As far as the relationship with Mexico is concerned, the growth in agricultural trade between Canada and Mexico has also been impressive during the ten-year period since the coming into force of NAFTA, in 1994. Canadian exports to Mexico experienced an exponential growth since the signing of NAFTA.
In 1993, Canadian food exports to Mexico were estimated at $237 million. In 2001, exports increased to $948 million.
Mexican farmers benefited from an improvement in trade with Canada. Last year, our imports were valued at $441 million.
There is still a lot to be done to increase our exports to Mexico. On January 1, 2003, Mexico eliminated tariffs on most agricultural products.
Among the Canadian goods under tariffs or tariff quotas in 2002 which have now duty-free access to the Mexican market, are pork, potatoes, apples, barley, wheat, oilseeds and confectionary products.
While benefiting a lot from the increase in agriculture trade exports to the U.S. and the Canadian markets, Mexican producers put a lot of pressure on their government to counter the elimination of tariffs under NAFTA, which came into effect on January 1.
Last week, demonstrations were held by Mexican farmers to show their opposition to the elimination of protection. In order to appease the producers and to mitigate the effects of lower Mexican tariffs, President Fox introduced last November a set of financing measures for agricultural products dubbed ``agricultural armour,'' which is in fact a Mexican ``farm bill.'' This is a program of measures aimed at increasing the productivity and the competitiveness of the Mexican agricultural industry.
The total budget for this subsidy program is valued at U.S. $11 billion and is 21 per cent higher than the budget which was ratified for farm support and rural development in 2002.
Considering the fact that only the budget for the ``agricultural armour'' has been approved up to now and that all its components have not yet been developed, we are making an analysis in order to have a good understanding of its impact.
In spite of the growth of our agriculture trade exports, Canada is still faced with a recurrent litany of regulatory and technical barriers at the Mexican border. An important and successful initiative supported by the provinces is the positioning of a customs representative who is able to help Canadian exporters on the ground to solve problems at the Mexican-U.S. border.
We will continue to develop jointly a better consultative framework and authorities enabling the development of a more productive and more collaborative relationship in that sector. Last year, Minister Vanclief signed a cooperation agreement on agriculture with his Mexican counterpart, Secretary Usabiaga, in January 2002.
The volume of agriculture trade is increasing considerably and therefore, the good functioning of our respective regulatory systems and their impact on the movement of goods is of prime importance. I would like to invite committee members to submit their questions. My colleague, Mr. Haddow, will answer your questions relating to health and plant health.
[English]
The Chairman: I wish to ask one brief question. I suppose with the Mexican agricultural interchange that the Mexicans would generally produce products that are different from the products that we produce. They have a big problem with maize and rice; as such do we export maize and rice to Mexico? Would the major controversy not be between Mexican fruits and vegetables and, in particular, Californian fruits and vegetables? I do not know.
During World War II, the Americans passed public law 43 and subsidized wheat exports to Mexico, thereby blasting Mexican wheat production. Are our exports to Mexico primarily grain?
Mr. McAlpine: Yes, that is correct.
The Chairman: They do not produce that much wheat; is that correct?
Mr. McAlpine: That is correct. Wheat and canola are important exports. We have increasingly valuable exports of pork and beef. In turn, Mexico is an important producer of those commodities, but not nearly to the extent that we are. They still have issues with respect to animal health and competitiveness.
In terms of imports, there is a complementarity to some degree because of their production of fresh fruits and vegetables — during winter months we import many of those products into Canada.
Senator Graham: Since free trade, it was mentioned that the United States and Canada have become, to use your words, one another's most important food exporters. What was the situation prior to the implementation of the free trade agreement on a comparative basis? You say that since the free trade agreement, we have become one another's most important food exporters. Who were our most important customers or partners, if you will, prior to that?
Mr. McAlpine: I do not have the figures in front of me. I can say with almost complete certainty that the U.S. was, prior to free trade, still our most important agri-food export market. In terms of our importance to the U.S. as an export destination, I am quite sure it was much less. Japan has had the leading role for some time. However, we can certainly provide the committee with that information.
Senator Graham: I am wondering why you said that since free trade we have become one another's most important food exporters.
The Chairman: Did free trade affect this, is Senator Graham's question.
Mr. McAlpine: In terms of our importance to the United States, we are now ahead of Japan as an export destination for U.S. agriculture and agri-food products. In the reverse situation, the U.S. was always the most important, but it has become more important. There is no question. I believe that 67 per cent of our total agricultural exports go to the United States, a much higher degree of dependence on that market than we had prior to free trade.
Senator Graham: It would be helpful if you would provide those figures to the committee. It is important to fully understand the impact of the free trade agreement.
In your list of commodities that where we have increased exports, you spoke about what would be termed dramatic increases in the sale, for instance, of French fries — I presume McCain, principally. You spoke about wheat, beef, pork, fruits and so on. I do not believe you mentioned potatoes. As an Atlantic Canadian, we have expressed concerns in our part of the country about the difficulties that Prince Edward Island potato growers and exporters have had.
I should like you to comment on that, and address whether we have overcome those difficulties. Are those difficulties bound to crop up from time to time, as more of an irritant, I believe, than a real problem?
Mr. McAlpine: Potatoes have certainly become an increasingly important commodity both from the perspective of the export of Canadian potatoes into the United States and the import of American potatoes into Canada. As you say, there have been various difficulties over the years with respect to disease situations, which result in trade problems.
The same is true with Mexico, where we have had our access to the Mexican market compromised by disputes related to technical barriers.
Mr. Haddow might speak more about how we are attempting to resolve those technical problems from a regulatory perspective.
Mr. Paul Haddow, Executive Director, International Affairs, Canadian Food Inspection Agency: Honourable senators, in answering this question, we must take into consideration the impact of free trade on potato growers, per se. If we are exporting a whole lot more French fries to the United States, then they are selling a whole lot more French fries domestically, at least. There are increased sales domestically.
As of the latest statistics, sale of potatoes to Mexico represents $2.3 million. That may not sound like much, but it started off from essentially zero.
It has been a difficult area, in part because the whole regulation in the phytosanitary area is a complicated one. Mexico, as do we, has obligations to do it on a scientific basis. Their system is under a lot of pressure because of liberalization under NAFTA. More foreign agricultural products are showing up, and their regulatory system is under some pressure to find ways to keep stuff out. We find that our relation with our regulatory counterparts in Mexico, not only in potato areas, but also other areas, is a high-maintenance relationship. We are vigilant in ensuring that when they do put measures in place they are based in science. We have noticed an increase in the attempts by Mexican authorities to put purportedly regulatory measures in place for scientific reasons, which at the end of the day were not all that scientific. We spend a considerable amount of time managing Mexican files.
Senator Graham: Either I am not explaining myself properly, or I am missing the point. On a couple of occasions in the last two years, when Prince Edward Island potato growers have been marketing their product in the United States, they have been virtually met at the border on a couple of occasions and those shipments have been turned back. Can we anticipate that on an annual basis, or are we dealing with it in such a way that it will, I would hope, not occur again? Prince Edward Island potato growers would argue that their product is clean and good, as we all know it in Canada to be; in fact, their product is as good as any other, if not the best in the world. However, the potato producers believe they are being hard done by by our trading partners in the United States.
Mr. Haddow: With respect to the case of potato wart a few years ago, there was an instance of this being found in a certain part of a certain field. It was a politically charged dispute, and one that could not have happened at a worse time, in the sense of it happening during both a Canadian and an American election. I think our friends in the United States in the potato industry strove to take full advantage of the situation in the run-up to the U.S. election. Many people say that it was an instance where NAFTA did not work.
To look on the positive side, given that it happened in P.E.I. and Maine, two parts of the world where potatoes are very important, it happened at a time of election in both countries and during a change of administration in the United States. When we did try to engage them, they were in the midst of a ministerial change. As well, in the U.S., with a changing government, a lot of officials change. You could not get from the biologist to the deputy minister, because there was no one in between.
That issue was solved. At the agency, we took 12,000 samples, in order to convince the American scientists that it was a very localized problem. We did satisfy them. We do not expect that to occur on a normal basis. We do not think P.E.I. potato farmers should fear a recurrence.
Senator Graham: This question is for information that can be provided at a future date. You talked about, in reference to Mexico, the increase in imports from Mexico since the implementation of the free trade agreement, but you did not give us a figure of what they had been before implementation of the agreement. Mr. McAlpine, those figures would be very useful.
Mr. McAlpine: In 1993, our imports of agriculture and food products from Mexico were $175.5 million. In 2001, they were $441.9 million.
Senator Graham: The useful figures I am asking for would be those, for instance, in 1988 or 1986.
Mr. McAlpine: We can provide them.
Senator Di Nino: As a follow-up question to that of my colleague on the Prince Edward Island potato situation, Mr. Haddow, I believe you said that you did 12,000 tests to satisfy the Americans that this was a very localized problem, not an across-the-province program; is that correct?
Mr. Haddow: Correct.
Senator Di Nino: Did they accept those tests at face value, or did they conduct their own testing?
Mr. Haddow: They may have done an audit of our sampling technique, but they essentially accepted our tests at face value. The relationship between our plant health regulators and our American counterparts is good.
Senator Di Nino: Is it normal to accept tests at face value? Are the standards for testing similar or equal? Do we trust each other?
Mr. Haddow: There are a lot of questions in there. In the case of potato wart, we asked them what it would take to convince them that this was an extremely localized problem at the corner of one field.
Of course, they were under a lot of political pressure to drag this thing out. As I recall, potato prices at the time were very low, and people were looking for any excuse to move potatoes. We wanted to deal with it on a scientific basis, and they eventually agreed and as such provided our sampling plan. We said this: If we were to take this many samples, according to this sampling plan, to meet these numbers with this tolerance and this standard deviation, would they be satisfied? The scientists went back a forth a bit, changed it a little here and there. People eventually agreed that it was a good sampling plan, at which time we got the samples and showed them the results.
Senator Di Nino: I am particularly interested in the situation through the lens of September 11, and Mr. McAlpine made some comments on that. I think you spoke of the new U.S. Bioterrorism Act as well as the issue of biosecurity. Obviously, through the prism of September 11, we will be seeing a number of changes. Where do you see the problem? Where do you think this committee should concentrate in our review of these issues over the next two or three months? Where should we be looking for answers or at least asking the right kinds of questions to be able to understand the issue better and possibly make some recommendations to the Government of Canada?
Mr. McAlpine: I will comment, then turn it to Mr. Haddow, who would understand it better from a regulatory perspective.
There is no question that the whole U.S. food sector, including the agriculture sector, is very much pre-occupied with bioterrorism issues, as well as, I would suggest, animal disease issues, in light of the foot-and-mouth circumstances and the BSE issue in Europe and the problems those have caused.
From an agricultural trade perspective, our major preoccupation at the moment is the U.S. Bioterrorism Act, especially in relation to the measures that would require prior notification of Canadian agriculture and food shipments to the United States — that is, prior to arrival at the border — as well as registration of Canadian food processing and manufacturing and storage facilities that might be involved in trade with the United States.
Senator Di Nino: Is that from a security standpoint?
Mr. McAlpine: Yes. They need to be able to identify or to know what food products are coming in and when. If there are concerns of potential contamination, they will be in a better position to target and to deploy resources to address those threats.
At the same time, there is successful cooperation under the Smart Borders initiative, and in the second phase of that there will be a discussion with respect to cooperation on issues related to bioterrorism. Perhaps I should turn to Mr. Haddow, who is more directly involved in some of those things.
Mr. Haddow: Senator, your question is quite pertinent. This is a very important issue. September 11 changed everything for many people. It is fair to say that what threatens the United States also threatens us. Almost before the Iraq situation, the U.S. was on a war footing in terms of bioterrorism and terrorism. They have had extensive reports done by their National Academy of Sciences on agricultural bioterrorism. It is a type of terrorism where an anthrax infection could be released and spread across a wide region and affect human health and lives and have economic implications. They are going through a very serious review of how they regulate.
For example, it cost the United Kingdom about £10 billion to come to grips with the foot-and-mouth problem. You would regulate against that in one way if it were an unintentional episode, but if it were intentional the way you would do it is different. Who would be involved in Canada? Would it be the RCMP or the CFIA? You have to search for answers to all these questions. Do you deal with it as an animal health disease or on a forensic basis? The United States is going through this, as are we.
Mr. McAlpine mentioned the Smart Border initiative co-chaired by Secretary Ridge and Deputy Prime Minister Manley. It is a very successful exercise. In the first stage, it focused on customs problems, having a Smart Border, computer passes and trucks. There was then a realization that unless you dealt with food safety issues, animal health issues and plant health issues, it did not matter what kind of computer card you had if these things were not in sync. That is not to say that we must have the same policies or same standards, but as you mentioned before, there must be that mutual confidence.
We are working with our counterparts from Environment Canada, Health Canada and Agriculture Canada, as well as our counterparts in the States, to try to map out what needs to be done to ensure whatever regulatory cooperation is required to keep the border safe, but also smart and fast, recognizing, as Mr. McAlpine mentioned, the fact that there is a truck going across that border every two and one half seconds. The government has a plan, and I think it is an important issue that would warrant the attention of your committee.
The second issue that Mr. Alpine mentioned is the Bioterrorism Act in the United States, where they really are changing how the border will work. Every shipment must be pre-notified. That means something different in the case of imports from China, which arrive on a boat that takes a month to get here and where there is one boat a week. In our case, where there are 7,000 trucks a day, it has a totally different implication when it hits the ground.
We held a meeting yesterday with the officials from the Food and Drug Administration. We are teasing out what they are trying to do. We agree with having a safer and more secure border. We want to ensure that, in getting that, we do not unnecessarily disrupt two-way trade. These are issues that are ongoing on many fronts between Canada and the United States, and we think that it will be a priority over the next year or 18 months.
The Chairman: That is very interesting. We must pursue this.
Senator Mahovlich: You mentioned green tomatoes. I am from the North, where green tomatoes are unripened red tomatoes. Why the sudden popularity with green tomatoes? Are we selling them unripened red tomatoes?
Mr. McAlpine: I was referring to greenhouse tomatoes. These are produced throughout the year. They are shipped ripe. I am not talking about green tomatoes as such.
Senator Mahovlich: I am sorry, I thought you were selling them green tomatoes.
Mr. McAlpine: Sometimes the term is ``under glass.'' They are greenhouse.
Senator Mahovlich: Greenhouse tomatoes, very well.
Has there been an increase in the use of trains for export, instead of trucks? Would not it be easier to export with trains, because of the difficulty in getting across the borders? Is there an increase in train usage?
Mr. McAlpine: Again, we could probably provide some figures that would illustrate how much traffic occurs via rail, road and so on. I think all modes of transportation have increased. By and large, the rail traffic occurs for movement of grains. Certainly, the majority of the grain traffic out of Western Canada into the United States would be by hopper car. In Eastern Canada, I am not too sure how much would occur by rail. We can get that information.
Senator Mahovlich: Since 9/11, has there been any sign of increase with rail traffic?
Mr. McAlpine: I do not think so. Regardless of the mode of transport, the requirements are the same, so it is not that by moving something by rail you are subject to less scrutiny at the border.
Senator Day: Gentlemen, I have one point of clarification, and then I will get on to my two areas of questioning. Did I hear you correctly that at the present time our trade with Mexico is roughly us selling twice as much to them as they sell to us? Did I get those figures correctly? I know you will give us the figures later, but I just want to have it.
Mr. McAlpine: I think it is actually more than that. We export about three and one half times more than we import from Mexico, but the figures are still relatively modest. There is still considerable potential to improve that trade.
Senator Di Nino: For clarification, we are only talking about agricultural products, are we?
Mr. McAlpine: Yes.
Senator Day: We will get these figures. Senator Graham asked you to provide us with the figures, and that will be helpful.
Another area that you discussed earlier was non-tariff barriers. Because I am from New Brunswick, I am familiar with what was happening with respect to the seed potatoes at the border. I will explain this in terms of logs, because the phytosanitary issue was involved with the inspection of logs coming from Maine into New Brunswick.
There was a reverse inspection process in place. If the inspector in the United States did not declare the logs free of any bugs, they would not allow them to come into Canada. It was not a Canadian person inspecting and saying, ``We do not want them to come across the border.'' Is that a phytosanitary reverse-inspection process, and is that a special arrangement only with respect to certain products? Could you give me a primer on that process?
Mr. Haddow: I do not know the details of that particular case. I vaguely recall.
We are trying to regulate smarter. We are trying to push the border back, including in the phytosanitary area. Instead of us doing the inspections when goods arrive in Canada, we try to move the point of inspection as far away from the border as possible. It does not make sense to turn back a boat full of a product in the port of Montreal if we can do the inspection in the port of export. We are doing that. Sometimes, in that spirit, we will work out arrangements with other inspection systems in which we have confidence. As I mentioned before, we have confidence in the scientific capacity of the people in APHIS of USDA. We would feel comfortable with them doing inspections on our behalf, as they would in having us do inspections on their behalf. It is a way to make the border essentially more efficient.
Senator Day: Is that done on a product-by-product basis or is that a general arrangement?
Mr. Haddow: It is done on a product-by-product basis, where it makes sense, where the people are on the ground to do it.
Senator Day: There is a danger that can arise, however; let me give you a real-life example. The people in Maine may not want to see those logs leave the state. The inspectors may then be a little slower; they may delay the commerce. Those are the types of complaints that we hear. On the other side, if they want to sell it, the complaint is that they are a little bit lax, perhaps. How do you ensure that those non-scientific impediments do not arise?
Mr. Haddow: We do recognize human nature for what it is, and that there are opportunities for unscientific elements to be brought into these things.
As I mentioned, senator, the purpose behind this was to make the border work better. If doing these things has the opposite effect, we are quite open. When a Canadian stakeholder has had their expectations dashed, they are relatively quick to call. If you know of an instance where they are hesitating to call us, I would encourage you to have them call us and tell what the problem is. It could simply be a management problem on the U.S. side, or it could be a case where it may not make sense to do it in that particular case.
We are open to reviewing any arrangement that is not meeting its intended purpose.
Senator Day: A truckload of a product has to be independently inspected. That can add quite considerably to the cost. That is the rule they would follow. The inspector might be way down in the southern part of the state and have to come up where the product is being produced, and he only comes on Wednesday afternoon between 2:00 and 3:00. Those are the kinds of complaints that we often hear.
I am pleased to hear that you are ready to respond. I have heard the complaints for some time. I guess your response has not convinced them to change their habits yet.
Mr. Haddow: You can give them my name, senator.
I should remind senators that there always will be complaints in the sense that we are trying to keep animal and plant diseases out of Canada. We do have to inspect, and maybe it is not convenient to do the inspection. We try to make our inspections as efficient as possible, but we have to inspect because, of course, if a plant disease were let in and suddenly our forests were infected, the same people who wanted the logs would now be saying, ``Why did you let them in?''
We have that sort of plant health mandate and we try to perform it in as business-oriented a way as possible. Our fundamental mandate is to protect plant health and animal health.
Senator Day: I understand the basic reason for doing it, and I applaud you on that. However, I am pointing out the potential danger of allowing a non-Canadian to do the inspection for you in the case of commerce coming into Canada, as opposed to a Canadian, who has the Canadian interest at heart in providing the inspection.
The other area that I wanted to ask you a question on is that of fish products, which you indicated that you are involved with as well. There was a problem in the Boston market with farmed salmon from Chile allegedly being dumped into the Boston and New England market and basically destroying the farmed salmon industry in Nova Scotia and New Brunswick. We had no recourse because the Canadian companies had no access to the dumping legislation in the U.S. Obviously, the people in Boston and New England were quite pleased to get the product at a very low price.
What, if anything, can we do in a situation like that?
Mr. McAlpine: That is correct. One clarification I will make is that the mandate for trade policy and market access issues related to seafood rests with the Department of Fisheries and Oceans. The mandate that Agriculture and Agri- Food Canada has acquired in the last several months is with respect to export promotion. However, on the issue, I think it is a valid point that you are making. It is a phenomenon that we see in other situations, where, as a result of increasing North American market integration, our export interests can be undercut by actions of other countries with respect to dumping or other things in the U.S. market.
The U.S, of course, has a very high tendency to resort to trade remedy actions in agriculture, whether it is against Canada or other trade partners. I am not that familiar with this particular situation or the extent to which they have resorted to actions to stop dumping from offshore seafood production in their market. I am not sure there is much more that I can say in terms of an approach. Mr. Thomson may have something to add.
Mr. Ian Thomson, Acting Director, Western Hemisphere Trade Policy Division, Agriculture and Agri-Food Canada: There is always creativity, of course. Presumably, if Canadian fish farmers are being injured in the market, so are American producers, off the West Coast or East Coast or wherever they come from. Maybe working with their American counterparts to address the issue that they would each be facing would be one creative way of aligning themselves with somebody.
The Chairman: Does this not have something to do with rules of origin? Is that not part of the rules of origin? In other words, you cannot bring something into the contracted party in a free trade agreement from a third country without showing where it comes from. Is there not some remedy there?
Senator Day: That is in terms of a tariff issue in rules of origin, but in this instance, I can conclude by pointing out that the trend is towards bilateral free trade agreements, as opposed to pan-American agreements. If it were a pan- American agreement, we would all be in there. If it were a third country other than the two trading countries that are part of the agreement, then you could easily provide for the situation. However, when you have a number of bilateral agreements — Canada-Chile and the activities taking place in a third country, United States — it is much more difficult in the Canada-Chile agreement to look after that.
I just wanted to make the comment that the trend seems to be towards bilateral agreements as opposed to the more global agreement where you might be able to avoid that kind of situation.
The Chairman: Honourable senators, we have run out of time with this panel. Our other witnesses have arrived.
We have addressed the question of secure access for Canadian goods and services rather than the dispute settlement mechanisms in this area. We have been given many things to think about.
I do not think anyone else has told us that there is a truck crossing the border every two and a half seconds. If the security issue goes on much further, as it looks like it will, it sounds like there is the potential for many problems.
Honourable senators, our next panel is comprised of two separate groups of witnesses who will be addressing the same subject, if I am not mistaken. Mr. Menzies, please proceed with your presentation.
Mr. Ted Menzies, President, Canadian Agri-Food Trade Alliance: Honourable senators, as a point of introduction, I am a farmer from southern Alberta as well as the president of the Canadian Agri-Food Trade Alliance.
I should like to bring you the perspective from our alliance. I am not a trade expert, except in the fact that everything that most of the commodities I grow on my farm are exported and show up in some form or another in different countries in the world. They may not arrive in those countries in the form they leave my farm, but, through further processing and value adding, they end up in most every country in the world.
The wheat from my farm can be found in rolls and loaves of bread anywhere in the world. The malt barley I grow on my farm may be turned into malt in Calgary, but it may end up in Corona beer in Mexico. The coriander I grow may be in the salsa that you consume with that Corona beer in Mexico. The chickpeas may end up in couscous in Morocco. Am I a trade expert? No. Nevertheless, I certainly understand trade and how it relates to primary agriculture, food processors and exporters.
The Canadian Agri-Food Trade Alliance, CAFTA, welcomes this invitation to provide our views and the experiences of our members on Canada's trade relations with the U.S. and Mexico.
CAFTA is a coalition of associations, companies and organizations in the agriculture and agri-food industry who rely on trade. Our membership encompasses associations of primary producers, processors, exporters, and marketers of agri-food products, totalling over $40 billion in business annually and employing almost half a million people.
Export-oriented commodities account for 80 per cent of Canadian farm cash receipts, and over 95 per cent of Canada's food exports. Commodities included in CAFTA's membership represent more than 50 per cent of Canadian farm cash receipts and over 80 per cent of agriculture and food exports.
CAFTA's primary focus is on global trade reform and the current round of agricultural negotiations at the WTO.
Many of our sectors will only see real benefits when substantial disciplines and rules are imposed globally on all players in the international markets. Having said that, however, CAFTA supports regional and bilateral efforts to reduce barriers to trade in agriculture and agri-food products, provided these efforts do not undermine the longer-term goal of maximum reductions in agricultural tariffs and subsidies on a global and reciprocal basis.
CAFTA's members generally supported the Canada-U.S. trade agreement and NAFTA agreements; however, protections for certain sensitive agricultural commodities have limited the benefits. Any future agreements must not exclude sensitive commodities. Overall, the Canada-U.S. trade agreement and the NAFTA agreement have had a positive impact on Canadian agriculture and agri-food. Since the NAFTA was approved in 1993, Canada's exports to the U.S. and Mexico have increased by 95 per cent, to almost $15 billion in 2000.
Some specific benefits for Canadian agriculture in exports to the U.S. include a seven-fold increase in soybean oil, four-fold in sunflower oil, 44 per cent in canola oil, doubling in beef exports, 87 per cent increase in pork, pasta tripled, frozen French fries four times and malt five times. The list goes on. Exports of dry beans have increased by seven times, peas and dry lentils five times. In exports to Mexico, frozen French fries increased 10 times. The one that I find rather ironic, since we think of Mexico as being a producer of vegetables that are imported into Canada, frozen vegetable exports from Canada to Mexico has increased by 78 per cent.
That is trade at work.
While the overall impact has been positive, there are still substantial trade problems with the United States. The increase in protectionism has brought persistent anti-dumping and countervailing duty challenges, which have and are costing our members money. The United States continues to provide extremely high levels of support; in fact, they have on the books trade-restrictive labelling regulations wrapped in the guise of food safety concerns.
Some specific trading concerns that our members have raised with us and want us to carry forward include the Canadian sugar industry, for example, which has not gained like it should have in these regional agreements. Aggregation of minimum access commitments limits Canada's access to one tenth of 1 per cent of the U.S. refined sugar market. The U.S. manipulates rules of origin in a protectionist manner to restrict Canadian access for both refined sugar and sugar-containing products. Under NAFTA, quotas that were accessed by Canada were reduced to provide country-specific access to Mexico.
One specific item in market-access restrictions caused the closing of a sugar beet processing plant in Manitoba. This stopped not only the production of sugar beets, but also the infrastructure that supplied that industry and the small towns involved in that.
The Canadian cattle industry was the subject of a very expensive anti-dumping and countervailing duty investigation, beginning in 1998. It took two years to find that there was no fault. Canada was not found guilty and there was no injury to the U.S. cattle industry. While it proved that the dispute settlement provisions of the NAFTA work, it demonstrated a need for more effective and timely dispute settlement provisions. This countervail duty is estimated to have cost over $5 million to the Canadian cattle industry.
This dispute also highlighted the need to place rules on who should bear the defence costs to avert frivolous investigations. Country-of-origin labelling requirements, which were included in the U.S. farm bill and which will become mandatory in 2004, have the potential to substantially lower prices for Canadian products.
We have great concerns with the Bioterrorism Act, which will require prior notification in December. There is a lot of ambiguity and there are a lot of regulations that will require our processors and exporters to meet the commitments. At this point, we do not know what those will be. However, there are great concerns about how complex and onerous it will be.
Canada's grains industry has faced nine different challenges from the U.S.. The latest is a countervail and anti- dumping challenge on Canadian hard red spring wheat and durum exports. The defence of the latest challenge has been estimated at Can. $10 million and this is a very narrow focus driven from the North Dakota Wheat Commission.
In harmonization issues, there is an important need for continued work toward harmonization of crop protection, chemical registration, maximum residue levels, product usage labelling and review procedure for minor-use product. There have been commitments for work sharing, to expedite the introduction of newer and safer chemicals, but these are moving slowly. For example, in the year 2000, the U.S. gave producers access to 901 new products for use on minor crops. These products are safer for the environment, for the user and for the consumer. Our regulatory system in Canada, at the same time, only registered 24 new products. We are, in effect, using old technology when new technology is available. Canadian consumers will be consuming food products from the United States that have been treated with these products. However, in the reverse, the United States has a zero tolerance policy for pesticides that are not registered in the U.S. It is important that as regulations are reviewed or developed, regulatory bodies in North America work toward harmonization, both to reduce costs and to better provide for consumers.
Another failure for harmonization is the addition of vitamins and minerals to foods. Health Canada is considering regulations that would prohibit the addition of calcium to margarine, but calcium-enriched margarine is approved and available in the United States. It is also important that separate formulations for these products are denied to our consumers. These are, as I said before, healthier and safer for consumers.
The U.S. farm bill, estimated at U.S. $160 billion to U.S. $180 billion over its 10-year life, will most certainly have an impact on trade from both Mexico and Canada. It entrenches what were originally ad hoc payments from 1998 to 2001 into permanent, cast-in-stone programs. The new counter-cyclical payments will insulate U.S. producers from markets signals. It adds pulse crops to its loan deficiency program and increases funding for export programs.
On January 1, 2003, Mexico eliminated tariffs on most agricultural food products. However, dairy, poultry, eggs and sugar products were excluded from tariff elimination, and maize and beans are still subject to TRQs until 2008. Products such as potatoes, apples, barley, malt, wheat, oilseed oils and confectionary products have duty-free access.
In November 2002, the government developed and presented a set of policy instruments dubbed the ``agricultural armour'' to mitigate the effects of tariff elimination. CAFTA encourages the government to closely monitor the new Mexican agricultural armour package to ensure that it does not create barriers to Canadian exports or place Canadian products at a competitive disadvantage.
In the last month, the Mexican border was closed to seed potatoes from Alberta, to protect against the spread of disease. We are now involving sanitary and phytosanitary issues, and they become a trade barrier.
In conclusion, trading relationships with the United States and Mexico have been positive since the implementation of the Canada-U.S. trade agreement and the North American Free Trade Agreement. However, regional agreements have not addressed the needs of all Canadian agricultural sectors, and growing protectionism, particularly in the United States, is of concern. CAFTA maintains that only through a global commitment to eliminate trade-distorting subsidies and to substantially increase access will the entire Canadian trade reliant sector benefit.
A positive outcome to the current round of agricultural negotiations at the WTO will address the problems outlined in this submission and will increase opportunities for Canadian exporters around the world. We encourage this committee to advocate, wherever possible, an aggressive approach to subsidies and tariffs in international trade negotiations.
I welcome any questions you might have.
The Chairman: Thank you very much, Mr. Menzies. Mr. Friesen, would you like to make your remarks now, please?
Mr. Robert Friesen, President, Canadian Federation of Agriculture: Mr. Chairman, it is our pleasure to be here to submit some of our comments with regard to North American trade.
The Canadian Federation of Agriculture, CFA, through its general farm organization members out of every province as well as national commodity organizations, represents every commodity produced at the farm gate in Canada in every region of Canada. I can tell you that, with the diversity in commodities that are produced by our members, trade is an important issue. While the CFA primarily represents the farm gate, it goes without saying that, without downstream industry, our farm-gate industry would be nothing. It is important that we consider downstream industry in our deliberations and in development of export markets.
We represent commodities that rely heavily on exports. In fact, all of the growth that we experience in many of our commodities is as a result of developing the export market. However, we also represent the import-sensitive commodities that Mr. Menzies mentioned a little earlier. We do not buy the fact that any commodity in Canada lost anything in the last round as a result of our Canadian government protecting our import-sensitive commodities, nor will our export industry lose anything by protecting the import-sensitive commodities in the next WTO round. In fact, our Canadian government has a solid, credible position at the WTO that would serve to help our export commodities as well as ensure that our import commodities were not undermined, and that is certainly a position that the Canadian Federation of Agriculture supports. I would be willing to go into more detail later if there are any questions on that subject.
I shall try to articulate some of our frustrations with North American trade. Having said that, I do not want you to interpret that as being a criticism of the fact that we do have North American trade. As I said earlier, our export industry is very important. We export well over $26 billion worth of agri-food products every year. Of course, that is part of an industry that generates $130 billion of revenue every year and is responsible for between 13 per cent and 14 per cent of employment in Canada.
We also contribute and generate a trade surplus of over $7 billion. Exports are therefore very important. Our exports with the United States are important. In fact, at least 62 per cent of our agriculture and agri-food exports go to the U.S. While our export market in Mexico is not as large — around 3.6 per cent of our agricultural exports in the year 2001 — it is a growing export market. In fact, between 1999 and the year 2001, the value of Canada's agricultural exports to Mexico increased by 87 per cent. The North American flow of trade is very important to our agricultural industry.
Nevertheless, we do have frustrations. Honourable senators will recall that after the Canada-U.S. trade agreement and the subsequent NAFTA, we essentially had a free trade agreement with the U.S. However, that is not without its own problems. While we need to continue to develop export markets in North America, we must do a much better job of making sure that countries comply with the spirit and the rules of any trade agreements that we have. Mr. Menzies already touched briefly on some of the frustrations we have, and I will go into some of them as well.
If you look at the farm bill the U.S. started somewhere back in 1994-95, you will notice that they started what we think was a very deliberate strategy of buying markets and cross-subsidization in the U.S. While it is true that almost 75 per cent of their agricultural subsidies go to the grains and oilseeds sector, it is also well understood that this results in cross-subsidization to their red meat sector. That is something we have to contend with.
If you look at the new farm bill, you will notice that they increased their spending, or at least they institutionalized the top-ups they put on their own farm bill. Not only that, they added more crops to the farm bill. They also legislated country-of-origin labelling, which to us is nothing more than a non-tariff trade barrier. If you put their new farm bill beside their WTO proposal, it becomes clear that their long-term strategy is to continue cross-subsidization. It has continued to force other countries to open up their markets. They will continue to highly subsidize their agricultural markets.
While they have been generous in suggesting that every country should drop their amber spending, they have no appetite to revisit green box definitions and would like to continue to spend unlimited amounts of money in green box subsidies with total impunity. If you add to that the fact that they want to continue to retain their tools to challenge imports from other countries, their long-term strategy becomes clear, that is, to try to achieve markets in other countries but not to be nearly as willing in offering up some of the markets they may have in their own country.
That is something that we have to continue to work on. We can give you examples of where they have challenged other countries, and clearly challenged Canada, not because we are in contravention of any trade agreements but because on many fronts we out-compete the U.S. We need only look as far as the Canada-U.S. trade agreement, which lifted any tariffs or restrictions on the import or export of Canadian wheat into the U.S. Subsequently, Canada volunteered a restriction of wheat exports. We were afraid the U.S. might use their section 22, and so we put restrictions on it. Then, through the WTO, the U.S. no longer had the right to apply any restrictions on wheat imports. Of course, since then they have continued to challenge our wheat industry on several fronts, not the least of which is the Canadian Wheat Board.
Those of you who are familiar with the Canadian Wheat Board know it is nothing more than a legislated farmers' marketing group. It does not contravene any trade agreements; in fact, it only helps our farmers to compete against the large transnational companies around the world, serves to help our farmers have more power in the international marketplace.
Look at pork challenges. The U.S. put a countervail duty on pork in the 1980s and continue to hassle our pork industry because of countervail challenges. This is not because Canada contravened any trade agreements but because we out-competed them. We can cite an example as recent as the potato problem we had in Prince Edward Island, when we identified a potato wart problem in a very small area on a 40-acre field. Canada complied with everything under the SPS agreement, and yet the Americans clearly put an embargo on Canadian potatoes because they wanted to save the Christmas potato market in the U.S. for that year. As soon as that period has passed, suddenly things started easing and a settlement was reached.
We must continue to deal with U.S. protectionism within the existing trade agreements. We have said for quite some time that the WTO should become the primary forum where we develop fair and equitable trade rules, and that is where we have to continue to ensure that we do not allow the U.S. to continue with their long-term strategy.
To draw your attention to the brief that we have circulated, I should like to move to future considerations and recommendations, within the context of NAFTA. One thing is very clear: While most trade agreements have with them a dispute settlement mechanism, we think that it is absolutely imperative that we have clear and fair trade rules so that we do away with the need to settle our differences with dispute mechanisms. Although they are very important to any trade agreement, it is much better to work vigorously at making sure that we have clear and fair rules.
I would invite you to read the entire brief when you have the opportunity, but under future considerations and recommendations, first, the brief lists a diversification of markets for Canadian exports. I use an example in the Canadian pork industry, where in the 1970s and 1980s our pork production increased. In fact, in the 1980s, 75 to 85 per cent of Canada's pork exports relied on the American market. The pork industry created a marketing arm, Canada Pork International, because they realized that it was important to develop markets in other countries so there would not be such reliance on the U.S. market. Today, approximately 50 per cent of our Canadian pork exports go to the U.S., and the rest of our pork exports have now found markets in other parts of the world. The Canadian Federation of Agriculture recommends that Canadian government agricultural trade policy goals should include the maintenance of export opportunities to the United States but should give priority to diversifying our agriculture export markets so that, over time, we can reduce our dependence on one market.
On the value of opening up new NAFTA negotiations, from time to time you hear the rhetoric that Canada should perhaps entertain the idea of re-opening NAFTA. While we do not recommend that NAFTA should be opened, because we are not sure that the benefits would outweigh the risks, the Canadian Federation of Agriculture does recommend that Canada seek clarification of the investor-state dispute resolution provisions of NAFTA chapter 11. Again, that needs to be dealt with without reopening NAFTA to further negotiations. For those who are not familiar with chapter 11, it deals with performance requirements and scenarios or situations where we have a foreign investor in Canada and if the rules change then the Canadian government could be liable for those rule changes.
As far as other bilateral and regional negotiations, we recommend that Canada should maintain its current approach to tariff reductions and eliminations, that is, being willing to reduce or eliminate agricultural tariffs on a reciprocal basis, with the exception of over-quota tariffs for supply-management products, while respecting the sensitivity of further reduction of refined sugar tariffs. Of course, any questions related to domestic-support export subsidies and state-trading enterprises should be dealt with in the WTO.
On environmental issues, we recommend that Canada should seek international venues other than trade agreements to resolve environmental issues and should try to ensure that trade-related agreements deal with government-to- government processes and not be used by NGOs as a forum to promote their environmental agendas.
On seeking solutions and maintaining the competitive position of Canadian farmers, the CFA believes that Canada should seek provisions that will effectively curb the misuse of trade remedy measures in the Doha negotiations. That is one of the problems we have with the United States. The CFA also believes that Canada must defend its right to establish and maintain effective marketing structures, but seek allies and vigorously promote WTO rules that clearly confirm the right of countries to grant producer-supported marketing bodies the power to regulate the volume of domestic product marketed, to operate a central desk selling agency and to pool returns in a fashion that does not distort international trade.
Finally, you are all familiar with our discussion on the long-term agricultural policy framework, the debate of whether the Canadian government should match U.S. subsidies in the agricultural industry, the debate of how we can get our farmers to compete against the farm gate in the U.S., rather than force our farmers to compete against the treasuries in other countries. We make the points that the provision of adequate weather and income safety net programs for Canadian agriculture is essential to the maintenance of the competitiveness of our agricultural sector.
We would certainly entertain any questions you may have.
The Chairman: Thank you very much, Mr. Friesen. Both of you have certainly opened up many areas. Senator Graham is our first questioner.
Senator Graham: Mr. Chairman, as we continue our study, we might consider the order of witnesses that we call. It might have been interesting to have these representatives before we had the representatives we heard from yesterday and the day before. We heard the minister two days ago, and just preceding your presentations we had officials from the Department of Agriculture and Agri-Foods Canada and so on. It might have been possible at that time to put some of your concerns to those officials as you have presented them to us today.
Do your two organizations interact very much?
Mr. Friesen: I will respond first, and then I would invite Mr. Menzies to respond also. Our agenda, as I mentioned earlier, is to achieve as much growth in the international marketplace for those commodities that we represent that have export interests. To that end, our goals and objectives are exactly what CAFTA's goals and objectives would be. Again, the need for the export market for many of our commodities is undisputed. While there is not a lot of interaction between the organizations, as I said earlier, we do represent the farm gate. Clearly, we do have some common goals.
Mr. Menzies: I see Mr. Friesen as much as I see my son who lives in Vancouver, so I guess we do interact in that way, not always at this type of forum, but we are both very involved in agricultural issues.
Clear trade rules and diversification of markets are common goals that will benefit both the Canadian Agri-Food Trade Alliance as well as Mr. Friesen's members. CAFTA is pursuing opportunities for our members internationally. We look at the benefits to producers, we look at the benefits to processors, and they are the same goals. If we do not have the processors that have the advantages of access to other countries' markets, then the producer end of our membership suffers. Certainly, we have common goals. We do not interact an awful lot, but we do where there is common ground.
Senator Graham: Mr. Menzies, at the beginning of Mr. Friesen's testimony, he made a point of saying that you operated in every province and region. Is that true for your organization as well?
Mr. Menzies: We have member associations in every province. One of our members specifically is the Grain Growers of Canada, and 90,000 farmers belong to associations that belong to the Grain Growers of Canada, from the B.C. grain growers all the way through to the Maritimes grains council, including every province in between.
Senator Graham: In your section on harmonization, you talked about using old technology when new technology is available. You used the example that, in the year 2000, the United States process gave producers access to 901 new products for use on minor crops while at the same time the Canadian process only resulted in 24 new products. Where does the fault lie?
Mr. Menzies: I do not want to be too critical here.
Senator Graham: You can be as critical as you want. We are here to help you.
Mr. Menzies: I appreciate that. The Pest Management Regulatory Agency has recognized this. They have put forward a fairly aggressive agenda with respect to that. They have hired a private contractor who has a Ph.D. and who has worked around the world on these sorts of issues. They have brought her in to put forward some positive movement on minor crop issues. It is a very complex issue.
It is a matter of chemical companies not wanting to spend enough money to get a chemical registered on a crop where there will not be huge sales. It is plain and simple commercial math for these companies, but PMRA is working on it. I sit on a NAFTA growers network. I was in the U.S. and met with the equivalent of PMRA and the EPA from the U.S. I went down in December and met with these people. They are working towards that harmonization issue that I spoke of. Canada is working on it. Any encouragement you can give on these minor-use products would help.
Mr. Friesen: I should like to complement some of the comments that Mr. Menzies made, but I will stick out my neck a little more and be quite critical. I have serious problems with the pesticide regulatory agency, for several reasons. First, companies to some extent will make a decision not to register a product because of the pain and hassle they have to go through to register it. Part of the problem is that the agency currently is not complying with efficient timelines. It takes much longer to register a product.
We had a concern when the pest legislation was passed and, as such, tried to change the wording to some extent. A lot of emphasis is being put on the re-evaluation of current products. That is important, and we support the re- evaluation of current products. We support becoming more environmentally sustainable when it comes to using pest products. However, farmers do everything they possibly can to make sure that they are environmentally sustainable when it comes to pest products. At the same time, they are also willing to use more environmentally benign products. However, we have to ensure that the same resources are spent on replacing the products that are pulled off the shelf, so farmers have the opportunity to go to products that are more environmentally friendly.
I sit on the economic management advisory committee for the PMRA. At our last meeting, one of the PMRA staff people, when pushed, said that they had no obligation to agriculture. We checked the mandate of PMRA, and of course its mandate is to make sure that the pest products we use are environmentally friendly and that they pose no health risks. At the same time, they have a responsibility not to undermine the agricultural industry. There is a balance to be kept, and there should be twin objectives. I can tell you that we are trying very hard, but we do have some way to go in having a PMRA that is efficient as it should be and that complements the agriculture industry to the extent it should.
Senator Graham: I promised myself yesterday that I would not raise the question of a customs union again, because on Monday we had one witness who was advocating a customs union and another who was disavowing the merits of a customs union. Yesterday, we had three witnesses, one who said it is not in the cards. If my memory is correct, a second witness said it is not on, and a third witness said that it would be unrealistic. The question of a customs union has been raised here, and I am just wondering what your position is with respect to the possibility of a customs union.
Mr. Menzies: If I could, Senator Graham, could you explain to me what you mean specifically by a customs union?
Senator Graham: It was raised in Mr. Friesen's paper, where he said periodically there are calls for greater economic integration between Canada and the United States, with proposals ranging from one currency to a customs union. It was suggested that that was the way to solve problems arising in the trading relationship between the two countries. Mr. Friesen, I presume that you are against a customs union.
Mr. Friesen: We are against anything that would tend to inhibit the flow of goods between Canada and the U.S. Certainly, it is not the CFA's policy to go to a customs union, nor to harmonize or go to a common currency. As I said earlier, we believe that we need to work much harder on fair and equitable trade rules and try to develop them in such a way that we use dispute mechanisms as infrequently as possible.
Senator Graham: I think that, in your paper at least, you are saying that accepting a customs union would be accepting the U.S. way of doing things, that they would be the dominant partner and Canada would relinquish its right to have different policies and marketing systems. That is what I am concluding from your paper.
Mr. Friesen: We are certainly not advocating that. That does not mean that we do not advocate harmonization in some areas, and that is another part of the old pesticide issue. We believe that there is a lot of room for better harmonization. In the flow of goods that basically flow freely between the U.S. and Canada, we need better harmonization. That includes areas such as pesticides. It might surprise you to know that we still allow horticultural products to be imported into Canada that have pest residue on them, yet that chemical is illegal for use in Canada. That is a competitiveness issue, and we believe that there is a lot of room for better harmonization without giving up that sovereignty that we treasure.
The Chairman: The way I understood you, Mr. Friesen, was I thought you said that you would like to see the dispute settlement mechanisms operate more efficiently but that you were against reopening the FTA.
Mr. Friesen: That is correct.
The Chairman: Of course, there can be cons as well as pros to reopening.
Senator Kinsella: I should like to go to the United States farm bill, and focus on the issue of the country-of-origin labelling as it applies to Canadian beef. Why do you think the American Congress passed that kind of legislation?
Mr. Menzies: It was political, plain and simple. I met with U.S. Secretary of Agriculture Ann Veneman last spring, and we had a lengthy discussion about that very issue. Personally, she was not in favour of it at that point. This was on May 5. At that point, she did not think it was even going to stay in the U.S. farm bill. Their political system was able to keep it in there. President Bush's own state was not happy with it. They buy many of their feedlot animals from Mexico. The costs that this will download onto their meat processing industry are huge. I can see some changes coming. We certainly hope they are starting to soften on it, but simply put, it was a political issue driven by the northern tier states, certainly not by Nebraska and the larger beef-producing areas. It is voluntary at this time, but it is still in the farm bill.
Senator Kinsella: We have between now and 2004, if I understand correctly. What should the Government of Canada be doing, in your opinion, to have that changed by the U.S. Congress?
Mr. Menzies: They should certainly be lobbying long and hard about this. We have seen numbers that indicate that it will add $1 billion in additional costs and $60 million in oversight costs. They had better argue long and hard that this is not only going hurt Canadian beef production, but that it will hurt their own further processing industry.
Senator Kinsella: As you examine the political reasons for which Congress adopted that measure, do you think that there may be a benefit to the Canadian beef industry, given that our beef is of superior quality? If beef is labelled Canadian beef, and the American consumer goes to the meat counter, they will look for the Canadian label.
Mr. Menzies: You are absolutely right, and I mentioned that to Ms. Veneman and said, ``Will you not shoot yourself in the foot?''
I used the example of Canadian bacon.
Senator Kinsella: The flip side of that is that if the American government or the American consumer is annoyed for whatever reason with Canada, because of the decision of the American government that it does not like our foreign policy, for example, is there a danger that the patriotic American will be encouraged to buy American beef and not Canadian beef? Is there a danger that in the supermarket they will shy away from Canadian-labelled beef.
The Chairman: I think Mr. Friesen would also like to answer this question.
Mr. Menzies: I would absolutely agree with you. There is certainly that concern. We have seen the results of protectionism, the issues with the North Dakota Wheat Commission challenging Canadian wheat, so they can launch a very strong consumer lobby that can hurt this. We are very concerned about it and we would certainly encourage our government to be doing everything possible to try to get this pulled out of this farm bill.
Mr. Friesen: I certainly agree with Mr. Menzies. As far as what we should be doing about it, I agree, we must push very hard. We do have allies in the U.S. As Mr. Menzies mentioned, their administration is against it, the commodity organizations in the U.S. are against it, the processing industry in the U.S. is against it and the retailers are against it. In fact, the U.S. agriculture department has estimated that the annual reporting and record keeping alone will cost the industry $2 billion a year. We are cynical enough to believe that that cost will accrue back to the farm gate, so we believe it can hurt their industry as well.
However, that is only for annual reporting and record keeping. That does not include the cost of segregation. When I ship a load of weanlings into the U.S. and they are raised to market weight in the U.S., it does not matter that they were only 15 pounds when they crossed the border. They were born in Canada, and they therefore have to segregate those animals on the farm, in the packinghouse, or as the product moves to the retail shelf. That is a real consideration. To us, it is nothing but a non-tariff trade barrier. We believe it has no scientific justification at all, and we think that as soon as it becomes mandatory the government should challenge it.
Senator Kinsella: I recall hearing somewhere that there would be a segregation of American beef from foreign beef in the supermarkets. Have you heard that?
Mr. Menzies: That is certainly possible, but our understanding is that it will be just a labelling issue. Further to that, however, the pork industry has used segregation of meat to its advantage. There are separate counters in Japan for Canadian pork, and they sell out first.
There are 1,000 different bar codes in the slaughtering process for beef. For example, Cargill, in High River, has talked about how much that could cost. The company is on both sides of the border, so they know how expensive it would be to change the bar codes alone to segregate these Canadian-origin animals.
Mr. Friesen: The political reason for passing this into law in the U.S. was that two senators were sensitive to this because their farmers saw a lot of pork and beef move into the U.S.
The Chairman: What two senators were they? What state did they come from?
Mr. Friesen: North Dakota. Clearly, part of the problem was created by the U.S — you heard me talk about cross- subsidization earlier. Many feeder hogs and feeder cattle are moving into the U.S. because the margins are better there because of the low cost of grain. Then, of course, we also out-compete them on the finished animals on economic standards as well as quality.
Senator Day: I have one point of clarification concerning Mr. Friesen's presentation. You indicate that you represent family farms. Does that mean that you do not represent any corporate farms?
Mr. Friesen: Absolutely not. If they belong to our member organizations, we represent them as well.
Senator Day: The other general question that perhaps both of you could comment on is this: Where do you see this issue of genetically modified products going with regard to marketing? I think Mr. Friesen stated that you would like to reduce your dependency on trade with the United States. However, you are not going to be able to sell genetically modified products in Europe. In the case of beef, even cattle that ate genetically modified grain would be labelled. Where do you see your membership going in relation to this issue?
Mr. Menzies: We need to improve the trade rules so that they are based on science. Everyone brings up the example of canola being kept out of the European market because of the adoption of genetically modified canola in this country. Europe was never a big market for canola, so there has been no impact. That is not the case with beef. The denial of access to hormone-produced beef is based on fear mongering and protectionism, not sound science. There are tremendous benefits that can be gained from genetically engineered foods.
For example, there is work being done on a salt-tolerant wheat that can be grown in alkaline areas, which could increase production tremendously in Western Canada. The genes have been manipulated to produce a salt-tolerant strain. Do we keep it out of the market simply because it has been genetically altered? We need to be concerned about our markets, but we also need to ensure that any discussions we have at the WTO are based on sound science.
Mr. Friesen: In the EU, their labelling legislation calls for the use of ``contains genetically modified material,'' but does not call for the labelling of any meat products even though those animals might have eaten genetically modified grain.
There is an interesting juxtaposition here when you talk about scientific justification. Clearly, when it comes to importing a product, we agree; we need scientific justification to keep it out. However, we have a peculiar case now in Canada where there is a possibility that a company might want to register a genetically engineered wheat. We have told the minister that there needs to be consideration of its marketability, because our industry has not yet achieved the level of segregation necessary to ensure that we would not spoil some of the markets that we currently have for wheat.
I should say also that Canada is a part of the Biosafety Protocol negotiations, an international agreement to manage the transboundary movement of genetically modified products. That may help the flow of genetically modified products, but it also creates a bit of a problem in that the U.S. is not a part of it. We have to be careful as far as competitiveness is concerned that we do not impose requirements on our own industry that may not be imposed on the industry in the U.S.
Senator Di Nino: You used the word ``biosafety.'' In the post-September 11 world, there are a number of changes that are taking place in relation to Canada and the U.S. One of the terms now being looked at is biosecurity. Could you give me your comments on how you feel that may impact on your industry?
Ms. Patty Townsend, Executive Director, Canadian Agri-food Trade Alliance: The Bioterrorism Act of 2002 contains a section on bioterrorism in food. Right now, there are a number of things in the act that have a big implication for Canada and other countries that trade with the United States.
They have just started doing consultations on two sets of regulations that will accompany that act. One of our concerns is the statute that will require all food exporters to the United States to provide advance notice of entry of all shipments of food that will be consumed either by humans or animals in the United States. That requirement is that you have to give no less than eight hours' notice, and no more than five days' notice, of a product entering the United States.
They just put out the regulations for comment. I have had some of our processor members say that those regulations may be burdensome to the point they may not be able to continue to export some products into the United States.
The other thing they have just put regulations out on is the requirement for all facilities — not just all companies, but all facilities — that may be moving product into the United States to register with the Food and Drug Administration.
We are not quite sure yet how that will affect, for example, our grain and oilseed industry where we have so many grain elevators where product moves from elevators into the United States. Will each one of those elevators need to register? Will there have to be advance prior notice for every trainload and carload that goes into the United States of bulk grains, for example?
It is causing us a great deal of concern. We feel that it could be a very significant non-tariff trade barrier, and we are trying now to make comments to the United States to try to figure out how we might be able to lessen the impact on trade.
Senator Di Nino: Before I ask a follow-up question, are there any comments from Mr. Friesen?
Mr. Friesen: I could not add any more to it. I would simply say ``ditto.''
Senator Di Nino: Is there any advice you would like to give us on how we should deal with this issue in our report, or at least how we should continue to explore this issue with future witnesses? What are you looking for from us? Is there anything we can do for you to help you along?
Ms. Townsend: We are trying to get our heads around how it will work and what it will mean for us. Just looking at the provisions in the statute knocked everybody back a long way, trying to figure out how we might be able to comply. This goes back to Mr. Friesen's comments about our dependence on the United States. For some of our smaller industries, it will have a big impact. Right now, just trying to figure out the impact is a big challenge for us and for you.
Senator Di Nino: For the record, I might want to suggest that before we complete our hearings we come back to this issue with the industry to see if they have advanced further their concerns in a way that can be helpful to us in dealing with it.
Senator Day dealt with this question before. You talked about lessening the reliance on the one market. He brought it under the guise of the GMOs, et cetera. From a general standpoint, are there markets in the world that your industry feels we should be promoting or marketing to that we are not at the present time, as either a country or as an industry?
Mr. Menzies: The one that comes to mind first is China. When we see the huge population there, there is tremendous potential, and of course they grow different crops than we do. There is a tremendous market there.
Senator Di Nino: Asia, in general?
Mr. Menzies: Yes. They are coming up to speed on the consumption of beer and beef. There is a huge potential. I do not mean to put it so crudely, but those are the two items they are adopting quickly. Let us hope we see some stability come to the Korean market, because there is a huge market there also. We are well situated geographically to access and fill those Asian markets. There is tremendous potential there. Private industry is accessing those markets, but we need the environment to advance them.
Mr. Friesen: On the bioterrorism issue, our government has to continue to consult at a very high level. The thing that concerns me and that I believe will become an even greater problem is the U.S. wrapping many of these issues in their flag. That is really what country-of-origin labelling is all about. They will have to decide again whether they want to live within the spirit and rules of trade agreements. Do they really want trade, or do they want to continue to come up with innovative ways of protecting their own market while they continue to beat down the doors of other markets? That is something they will have to come to grips with.
With regard to developing other markets, I will ask Marvin Shauf to address that.
Mr. Marvin Shauf, Second Vice-President, Canadian Federation of Agriculture: The issue with the United States and becoming less dependent is the fact that one big customer can hurt you every bit as badly as one big competitor. We are so dependent on the United States for the exports that we put into it, exports that they add the value to and again export. We end up being dependent on them, and they end up being dependent on us to backfill their markets. We are dependent on them for a flow-through.
We really need to develop our own mechanisms or our own relationships with those markets. It is as much about diversifying as it is about development. We just need to become far less dependent on them to add the value. We need to develop that piece of it at home, and we need to develop the relationships to develop the markets internationally as opposed to just on this continent.
Senator Setlakwe: We hear so much about globalization and liberalization of trade, but there is one area where this does not seem to be functioning well at all. The Americans are imposing trade restrictions, and very expensively. Our studies so far have pretty well indicated that if there is any reticence on the part of the Europeans with regard to liberalization of trade with Canada, the main stumbling block once again is agriculture and agricultural subsidies within the European Union. They seem to be adamant about maintaining that position. To what extent do you feel the Doha round and the WTO will inflect upon that position, either with the Europeans or the Americans? Is there any hope that there will be liberalization in agriculture?
Mr. Menzies: I am an optimist; I think there will be. The rhetoric coming out of the European Union — I should not even call it rhetoric — sounds more positive than the rhetoric we heard before. They want to move away from direct export subsidies. They recognize that that has hurt them financially. They have new countries coming in that will want the same type and the same level of agricultural support that France and Germany and the other countries are enjoying right now. They cannot afford that. They are doing the math. They recognize that it cannot continue.
They are talking fairly solidly about moving it to some sort of decoupled support. They recognize that, with their population, they need to support farmers. They feel they need to support farmers in some way. If they choose to decouple it so it is not production distorting, if they want to continue down the road of encouraging a green Switzerland and reducing the production and the intensive use of fertilizers — they have run into incredible environmental problems because of that, and they are recognizing that their subsidies have created an environmental catastrophe in some of those countries. They are looking at moving away from that.
I look positively on this. I think everyone is serious in their intentions. We need reduction in export subsidies, and we need access to other country's markets.
Senator Setlakwe: Even with the Americans?
Mr. Menzies: Yes.
Mr. Friesen: A few positive things came out of the discussions in Doha. We did manage to get the Europeans to bend on export subsidies. It was in there a little more clearly than what they would like to have put it in there, so I think we got a small victory in principle. We got a small victory in principle on the issue of anti-dumping. The Americans had to bend and agree to put that on the table for discussion.
The other interesting dynamic at Doha was the fact that India managed to delay the successful outcome of the communiqué coming out of Doha. I believe that indicates that the developing countries will want to play a larger role in the next round. They clearly felt victimized in the last round. To some extent, Canada did too. With the advent of the Blair House Agreement, certainly the developing countries felt victimized. They will be looking for a much more inclusive process.
As far as our relationship with the United States, aside from the elimination of export subsidies and improvement of market access, they will have to realize that protectionism is not only high tariffs in other countries; in fact, when we talk to farm leaders in developing countries, they far more often refer to protectionism as being high levels of subsidies. We will have to somehow be able to discipline the U.S. on their high subsidies, and we will have to somehow cap the green box so they do not simply move money out of amber programs into green programs. I can tell you that the program where the U.S. is flowing around $20-plus billion a year to the grains and oilseeds sector is considered a green program in the current agreement on agriculture, but it is far more trade distorting than the amber programs that we currently have in Canada. We really need to get a handle on that.
The Chairman: Questions have been raised that are really very important, so the meetings are going longer than they are supposed to go. I apologize to all. We are learning as well in this process. Thank you very much for a very interesting presentation.
The committee adjourned.