Proceedings of the Standing Senate Committee on
Agriculture and
Forestry
Issue 30 - Evidence
OTTAWA, Thursday, March 25, 1999
The Standing Senate Committee on Agriculture and Forestry met this day at 9:00 a.m. to study the present state and the future of agriculture in Canada, consideration of the effect of international trade issues on farm income.
Senator Leonard Gustafson (Chairman) in the Chair.
[English]
The Chairman: We have before us representatives from the Canadian Broiler Hatching Egg Marketing Agency, the Dairy Farmers of Canada, the Chicken Farmers of Canada and the Canadian Turkey Marketing Agency. Their main concern is the next round of the WTO negotiations in agriculture. This is a very timely meeting, since the committee went to Europe and had 25 meetings over ten days in which we heard a good deal about world trade.
Mr. Richard Doyle, Executive Director, Dairy Farmers of Canada: The white binder that has been provided is a reference manual. It contains the position that the five national organizations fully endorsed just a few days ago. It contains all the arguments and the analysis behind that position. It gives you a good background as to what happened in the Uruguay Round and what has happened since the Uruguay Round. My presentation will focus mostly on that particular aspect of it.
There are also other reference materials such as the Agreement on Agriculture and a glossary of the terminology we use in the WTO. We have produced this binder for members of parliament and senators, as well as for our own members. We will send you updates and further analysis that can be added onto that historical information and the position that we take.
[Translation]
I shall begin my statement with the results of the Uruguay Round. The main achievement of the Uruguay Round is that, for the first time, the cultural products are subject to international rules of trade. These negotiations also introduced a dispute settlement mechanism to ensure that these rules are followed by all countries, big or small.
Finally, all countries made binding commitments in the three main areas of the negotiations: export subsidies, market access and domestic support. The commitments that were set out in the annexes, specifically the tariffs, are binding. They are therefore fixed, transparent and predictable. You have to understand that at the very beginning of the Uruguay Round in 1986, Canada had a relatively simple position.
The Canadian position was, at the outset, to eliminate all export subsidies and to reduce all tariffs by 50 per cent. It was only in 1990, four years after the beginning of the Uruguay Round negotiations, that Canada developed the balanced position that included other elements, specifically Article 11 for supply management systems.
At the end of the cycle, we have to look at the results. With respect to access, very little access was offered to Canada for all agricultural products. It achieved a very small reduction in export subsidies, although everybody considered this to be the crucial element in these negotiations. In the context of supply management, after a seven-year battle, we nevertheless lost Article XI:2(c)(i) which was crucial to our position.
However, the question today is whether the Uruguay Round established a base on which further progress can be achieved in the next round of negotiations. Clearly, the answer is no. We have not established a basis for continued progress in the Uruguay Round.
Let's look now at the three main elements of this negotiation. First, for export competition, the volumes of subsidized exports have to be reduced by 21 per cent over a six-year period and the level of expenditures reduced by 36 per cent.
The agreement on export subsidies has two positive aspects. First, the reduction commitments made by all countries were subject to specific rules incorporated into the agreement. The 21 and 36 per cent reductions are subject to specific rules incorporated into the agreement, and this is an important point.
The agreement also provides that export subsidies are prohibited on products that did not originally benefit from such subsidies, that is in the period before 1986 to 1990.
Of the 130 countries in the negotiation, some 30 negotiated the agriculture agreement on a regular basis. Of these countries, 25 undertook reduction commitments on both budgetary outlays and subsidized volume of exports. A total of 428 commitments were made. Of these, Canada made 11 commitments compared with 13 made by the United States and 20 by the European Union. While the number of notifications received by the WTO Secretariat remains incomplete, it is clear that an increasing number of commitments are being met by the elimination of subsidies.
We have data for only 1995, which was the first year of implement of the implementation of the Uruguay Round commitments. For the various world commodities, the commitments have already been met. The use rate expresses the average percentage utilization of the export subsidy limits committed by all countries. If you committed not to exceed 100, and you already have 10, then you have a 10 per cent use rate of your commitments. In 1995, for example, when world prices were very high, the use rate for wheat averaged only 6 per cent. It should be pointed out that for the products that we represent, dairy products, meat and eggs, use rate tends to be much higher.
The reality remains, however, that the two biggest players on the international scene, the United States and the European Union, are out of reach with respect to export subsidies. If we look at 1995, at all of the various products that were subsidized, 95.6 per cent of cheese exports arrived from the United States or the European Union, compared to 76.4 per cent for skim milk powder. In the case of poultry, their share represented 99.4 per cent, and for eggs, it was 92.1 per cent. It is clear that these two countries alone count for more than 90 per cent of all subsidized exports.
With respect to market access, we have said that one of the gains of the Uruguay Round was to establish a rule-based system. This may be the case for subsidies, in spite of the low reduction, but it is far from true in the case of markets. No rules were agreed to for the establishment of respective commitments. Everybody thought that there was a 3 per cent to 5 per cent minimum access and that the tariff equivalent or over-quota was indicated. These were guidelines in an implementation document that were never incorporated into the agreement on agriculture.
The strength of rules is that all countries must apply them. If they fail to do so, there is a dispute settlement mechanism or partners can be obliged to meet the rules. The problem with directives is that they are subject to interpretation. This has happened with the Uruguay Round. The United States and Europe have interpreted these various rules to achieve results that are unfair and inconsistent. We have experienced dirty tarification. This is what underlies the dirty tariffs or dirty access that has resulted from the Uruguay Round.
We often hear people saying that countries should respect the commitments they have made. This is not the problem. Countries are meeting the commitments they made. The problem comes from the fact that these commitments, because they are set out in directives, were neither uniform nor fair. Therefore, they do not constitute a basis for continued progress.
[English]
What were those guidelines? I will take the example of the establishment of minimum access for dairy products under the tariff-rate quota system.
Minimum access commitments were to be established, according to the guidelines, at the level representing 3 per cent of domestic consumption based on the period from 1986 to 1988. They were to grow to 5 per cent of domestic consumption by the end of the implementation period, which is the year 2000.
Let us see how those guidelines were interpreted by our partners. The United States interpreted the guidelines in a manner that resulted in a market access significantly lower than the 3 per cent or 5 per cent levels. I am using dairy as an example. The U.S. did not consider offering minimum access on a tariff line basis or on a product-by-product basis. Instead, they invented a mechanism to measure the butterfat and solids-not-fat components of each dairy product in order to estimate the total amount of imports necessary to fill a 3 per cent access on a component basis. That methodology, which could in itself lead to years of debate just on the adequacy of each of the conversion factors that they used, indicated a deficiency in butterfat. The United States compensated for that by providing increased access mostly in frozen cream, which they offered mostly to New Zealand on a quota-specific allocation. That is only one aspect to show you the kind of interpretation that countries have made, with the result that the U.S. never offered 3 per cent to 5 per cent access in dairy products.
Let us look at what the European Union did. It considered the 3 per cent to 5 per cent access as a commitment to allow a certain level of imports into its market, independent of the tariff conditions applicable to such imports. It therefore assumed that to meet its 3 per cent commitment, it had to offer only additional access necessary to reach that level. In the case of dairy products, it measured this access commitment for only three products -- butter, skim milk powder and cheese -- as if all other dairy products were more or less irrelevant. There is no access for ice cream, evaporated milk or yoghurt. None of the other dairy products have received any access in Europe.
That approach prevented any changes in the condition that prevailed on the historical imports. All variable levies were converted to high tariff equivalents. Therefore, if a product was historically imported into the European Union under a specific quota allocation and subject to a most-favoured-nation tariff, those conditions remained. However, if those historical imports were made subject to the variable levy system, they became subject to a high tariff equivalent, even though they were part of the minimum access, supposedly that 3 per cent.
Cheese that we were exporting to the United Kingdom is a good example. Historically, we had preference access to Europe for 2,500 tonnes of old cheddar cheese from Canada. To maintain that market, over the years we have shipped over 4,000 tonnes of cheese to the United Kingdom because the demand was extremely high. On the additional 1,500 tonnes, we were paying a tariff of over $2,000 or $3,000 per tonne. That was the variable levy. Europe converted all of their variable levies into a high tariff, which is the equivalent of that $3,000 a tonne. The problem remains that they consider that 4,000 tonnes to be part of their 3 per cent access commitment. They are the only ones charging over-tariff quota on the minimum access commitment, which is inequitable.
Let us deal with Canada. In 1993, in defending Article XI, Canada had put on the table a very clean access of 3 per cent to 5 per cent. In the end, when we saw the U.S. offer and the EU offer, we withdrew a whole series of concessions and tried to mimic as much as we could the U.S. and EU offers. I am not claiming here that we have a clean offer. However, you can see that we have a cleaner offer, unfortunately.
While everybody was supposed to follow the same modalities, here are the actual results. By the year 2000, we were supposed to be at 5 per cent access of the historical consumption. However, on dairy products, Canada would offer by then 4 per cent of our domestic consumption. United States at best would be at 2.75 per cent. Europe at best would be at 3 per cent of their consumption. There is no base to pursue these negotiations and simply to continue with the same methodology that was done the last time.
Let us deal with our colleagues in the other commodities. If we look at poultry and egg products, we can compare the access offered by Canada under tariff-rate quotas to that offered by the European Union. This graph shows that Canada has respected its access commitment. By the year 2000, Canada will be providing on a product basis the minimum 5 per cent access. In the commodities where the access was higher historically than the 5 per cent, it has also been retained.
The European Union offered no access on broiler hatching eggs. They applied a tariff equivalent on all imports of broiler hatching eggs, which is a 55 AQ per 1,000 pieces. That is roughly the equivalent of 40 per cent tariffs from the world market level. They have offered only 3.3 per cent access on eggs in terms of their consumption. In the case of all poultry meat, they have less than half of 1 per cent access for the whole market.
Let us look at the tariff quotas by product category. Thirty-six WTO member countries have tariff quota commitments. That is most of the countries who were negotiating in the agricultural committee. They are shown here in tariff schedules. Those countries have established a total of 1,370 individual tariff-rate quotas. We are not the only one, as you can see. Canada has only 21 tariff-rate quotas compared with 85 TRQs issued by the European Union and 54 TRQs issued by the United States.
Of those 1,370 TRQs, 183, or 13 per cent, cover dairy products. Canada has issued 11 TRQs on dairy products, compared with 12 TRQs by the European Union and 24 TRQs by the United States. The reality is that many countries have sensitive sectors subject to tariff-rate quotas. The dairy sector, like others, is just as sensitive, if not more sensitive, in those countries pushing for significant trade liberalization, such as the United States.
Another interesting aspect of tariff-rate quotas is the manner in which they are administered. That will be a key element of the negotiations in the next round. Here again, Canada has achieved a higher fill rate of its tariff-rate quotas than most of its trading partners have. The fill rate is the comparison of the actual imports as a percentage of the actual committed access. In other words, of the access that we have offered, 91 per cent is achieved.
If we go back to the 4 per cent access that we said we were offering, almost the totality of that will be actual imports. Of the 2.75 per cent access that the U.S. has offered or will have offered by the year 2000, their fill rate is approximately 54 per cent or 60 per cent. That is all products, so it will include all commodities.
The fill rate for dairy products in Canada is about 100 per cent. In contrast, even though the United States has offered only 2.75 per cent access to its market, it does not even fill it, because of the way the U.S. administers those TRQs. We will return to that later. A good example is offering an ice cream quota to Jamaica. Jamaica has not shipped much ice cream to the United States in recent times; in fact, Jamaica has not shipped much ice cream to anybody in recent times. That is how the TRQs are administered. Access is offered, but it is not achievable. You can see that the world level is 63 per cent, which is not very high.
We have the same situation with eggs and egg products. Many people are complaining about state trading enterprises and administering imports and so on. The difference is that they do achieve 100 per cent access because they have an obligation to do so. When you get into other countries that tend to say they are free traders, you can see what happens. They have all kinds of non-tariff barriers to ensure that their access is not achieved. The same situation is true for meat. We see that situation over and over, regardless of the products.
I will turn to tariff equivalents. Beyond the issue of minimum-access commitments, the result of the tariffication process was that all non-tariff barriers were converted into tariffs of equivalent effect. In addition, all tariffs had to be reduced, as per the guidelines, by 36 per cent on a simple average basis, with a minimum reduction of 15 per cent per tariff line. I stress again that those were guidelines. Not a single country followed the same process for the reduction of tariffs. The 36 per cent reduction and 15 per cent minimum are not part of the agreement. They were incorporated into schedules that were agreed to by others.
Regarding domestic support, I believe you are familiar with the colour code introduced in part by Canada in the last round. It is based on the traffic light system. The red light is the export subsidies that had to be stopped, reduced, banned or prohibited. The amber light is domestic subsidies that were supposed to be trade distortive. They were subject to reduction commitments of 20 per cent. However, within the commitment you had a level. The green light is non-trade distortive or minimal trade distortive, such as research or promotion, where basically you could do what you wanted.
As a result of the Blair House Accord, we have a more European traffic light now. We introduced a blue light. The blue light is no different than the amber light, except that it is not subject to reduction. There is trade-distorting domestic support, but the Europeans negotiated that with the United States, and they are not subject to any reduction for nine years.
To assess the situation with domestic support, unfortunately data exists for 1995 only. Based on that data, it is clear that all countries had little difficulty meeting their total reduction commitment for the six-year period in the first year of implementation because it applied only to the amber category. More important, however, is the fact that the level of support offered to domestic industries in the United States and the European Union has not been influenced by those commitments. Despite the fact that the United States is meeting its aggregate measure of support commitments, which is the manner in which you measure the amber category and reduce, the United States has reported that green expenditures were almost twice as much what they were during the base period. That is not even counting the $6 billion they gave last year to agriculture. Therefore, there is an apparent shift from amber programs subject to reduction to the green box programs exempt from the reduction commitments.
The same situation occurred in the European Union, where green programs were doubled and where most of the reduction in amber programs was actually converted into the blue box category not subject to any reduction. Canada did have over 40 per cent of reduction in total categories of domestic support over the same period.
It is clear that you look not at the colour code, but at the total domestic support, whether that is green, amber, blue or the de minimis factor. If I compare the total level of domestic support offered to the total agriculture as a percentage of total value of agricultural production in Canada, in 1995, the level of total domestic support was 16 per cent of the value of production. The United States had 32 per cent; Europe had 42 per cent. That is far more important than determining which colour code your domestic support fits. That will have to be addressed.
I will give you our interpretation of the situation in at least the United States and Europe in preparation for the next round.
The United States has made their position known. They have failed to obtain, on two occasions, the "fast track" authority. For the next round they want an ambitious outcome on market access expansion, even though they do not have the authority to negotiate. They want a reduction of bound tariff rates. They want a simplification of complex tariff regimes, even though they have one of the most complex. They want new disciplines on tariff-rate quotas administration, even though, as I explained before, because of that particular aspect, they have one of the lowest utilizations of their own tariff-rate quotas. They want a reduction of trade-distorting domestic support, even though they have decreased the total domestic support to their agricultural sector. They want to eliminate the blue box because, while they used it in 1995, they have not used it since. Therefore, it is of no use to them. It is actually only Europe who was using the blue box. They want a continuation of the green box, of course, which they are very fond of using. They also want the elimination of all remaining export subsidies. They want increased discipline on state trading enterprises. They want a sectoral round.
In the next round, a number of agreements, procurements and services in agriculture will be part of the agreements. The United States is promoting that the agreements remain in agriculture, that you do not have to finish the services or the procurements before you have a deal in agriculture. The Europeans are promoting a comprehensive round, where basically nothing is agreed to until everything is agreed in services, in procurements, in agriculture all together.
The U.S. administration has failed twice to convince Congress to give them the fast track authority. The fast track authority is necessary so that the U.S. does not have to table the negotiated agreement to Congress and have Congress review every word, every letter, every commitment and so on. Nobody will seriously negotiate with the United States without the fast track process.
There is a recent study from the Cato Institute that looks at how the U.S. congressmen and the House representatives voted in the last session. Ninety per cent of Congress favoured trade restrictions. Only 6 per cent of all House representatives in the last session constantly voted against any protectionism or subsidization. Ninety-four per cent of House representatives at one point voted for protectionist measures in the United States.
Senator Whelan: What about the senators?
Mr. Doyle: That includes the Senate, Senator Whelan.
We also know about the $6 billion. In other words, Congress and sometimes the administration, when they get into trouble, as much as they want to eliminate all subsidies, are very keen to buy their way out of political problems. We know what happened in agriculture last year. Those who suffered were the grain and pork producers. The pork producers are not receiving one penny of that $6 billion. They are not eligible for any of those programs. The dairy industry, which had the highest price level in the history of the United States, has received $200 million out of that package. That is absolutely unwarranted. But it is a green program and therefore not subject to any discipline.
Let us look at the European Union. The European Union's priorities are the common agricultural policy reform and the eastward enlargement. Their portion is linked back to those two particular elements. In fact, the two are intertwined.
The European Union also wants a comprehensive round. In other words, they are not going very far into their reform. They want to ensure that all aspects of the negotiation and services and procurements will be linked with agriculture.
A couple of weeks ago, the members of the European Union Commission resigned, and there is some turmoil going on. There is no way that the European Union can come into this next round without promoting the maintenance of export subsidies. It is at the heart of the reform that they are trying to initiate. They obviously want to retain the tariff-rate quotas. In dairy, for example, they are offering a 10 per cent reduction in support over a six-year period in compensation on a per-cow basis of a blue box payment for each farmer.
The eastward enlargement is a priority and a major concern. Currently, if they were to incorporate some of these countries, they would have to double their budget in agriculture, which is the largest aspect of the commission's budget. They know they cannot do that. That is one of their biggest problems.
The next round of WTO negotiations will start on December 3, 1999, in Seattle. That will be the ministerial meeting that will launch the next round. The big question is how long the next round will last. Will it last more than three years? We do not think that the U.S. will get fast track authority before 2001, so we know that there will not be very much serious negotiation before that time. The timelines in the WTO are a very fluid concept. Our guess is that they will be at least three years and most definitely more than three years.
At the ministerial meeting, they will have to decide whether they will proceed with a comprehensive round or a sectoral round. We will know that in December. The next round already has a pre-set, built-in agenda because that was part of the agreement of the last round. We already know of at least three series of negotiations that will have to be initiated by agreement: agriculture, services and government procurements.
In agriculture, the built-in agenda already contains the export competition, market access, domestic support and non-trade concerns. Those are not open for debate. They will have to be negotiated.
We continually hear of all kinds of other issues. There has been debate since the last round about other issues that could be incorporated within the built-in agenda that are not necessarily mandatory. One is state trading enterprises; the United States has tried very hard to address that. Another issue is sanitary and phytosanitary measures, which are subject to a separate agreement. That is under review but not necessarily under negotiation. That is the debate about biotechnology and genetically modified organisms. The issue of environment, which is also very heavy, is not currently in the built-in agenda, but there is a lot of pressure to incorporate it.
When we talk about the five commodities that we represent and we look at the challenge of the next round for Canada, we say that we are going to have a new negotiation that, like the last one, will be strongly influenced by the United States and the European Union. Canada might have more influence at the beginning or more influence in the manner in which the negotiation will proceed. However, in the end, given what is happening around the world, the United States and Europe will again lead whatever achievements are made during this next round. They are the two most trade-distorting countries in the exporting business, and they are leading the negotiations.
In developing a policy, another problem is that supply management is not a WTO issue: It is a domestic issue. There is no clause in the agreement that talks about supply management. There was a previous clause -- Article XI. However, we can no longer use Article XI. Therefore, in this next round, supply management is not an issue. We are not addressing supply management within the context of the negotiation. We are addressing it within the context of the marketing system we want in this country domestically. There will be no debate for the next round in this country about supply management or non-supply managed commodities.
The Uruguay Round is not offering a base under which we can progress, unless we address the base again. It is totally distorted. There is no comparison. The access is different. The measurements are different. You need to have a system based on rules. Clean up what was done during the Uruguay Round and establish those rules. Forget the guidelines and modalities that everybody interpreted individually. Establish rules that have to be applied by everybody uniformly. We can live with that.
Supply management is not going to be at the heart of the position. I am not saying that we will not fight for supply management and supply-managed commodities. Do not take me wrong. We will continue to defend all those principles because we strongly believe in them, but as we develop our WTO commitment and our WTO position, supply management is not at the heart of our concerns. There are many other things to address.
The strategy we will be presenting is to show what the U.S. and the European Union are talking about in practice. That is why we produced the binder. That is why we are going to give you further analysis. We will give you more and more of these numbers. Those people are claiming free trade, telling us to clean up, telling us how they want world trade to work. They are talking one way, but they are doing something else. We know that. We will put that on the table during the negotiations. We will do the analysis for them. We will do not only our own homework, but theirs, in order to show what they are doing in practice.
We are in favour of the elimination of all export subsidies. The problem is that in this country we all support the elimination of export subsidies and there likely will not be any controversy about this, regardless of the commodities or the sector of the industry or which government you represent. Unfortunately, as we saw in the Uruguay Round, we know that that is the worst aspect of anything that distorts trade. Let us make sure that we continue to focus on the priority of this negotiation, which is the elimination of export subsidies and not a 20 per cent reduction. The EU has over 90 per cent of those export subsidies. Let us make sure that the EU is committed to getting rid of those export subsidies before they start talking about the administration of TRQs and all those other things that, in the end, have far less influence in distorting trade than the export subsidies themselves.
The Chairman: It is the consensus of the committee turn now to questions on your presentation, because you have presented a lot of material to us.
Senator Whelan: With respect to subsidies, I want to know who is looking after our Canadian interests. The House is holding hearings on the WTO all across Canada. Do you have anyone at those meetings?
Mr. Doyle: The five national organizations representing producers of commodities under supply management have made presentations to the committee. Today the committee is in Halifax and our dairy producers will be making a presentation to them. They will receive presentations from representatives of our organizations in Quebec and in all provinces that they will be visiting.
Senator Whelan: Who was looking after your interests at the first meeting in Uruguay back in 1984?
Mr. Doyle: We were looking after our own interests. Part of our job is to give you information and knowledge about how our industry functions. We work very closely with the negotiators and the negotiating team, although we are not always in agreement, because they have a broader spectrum. The industry has been able to achieve consensus. We had a balanced position. Our job at the last round was to ensure that the negotiators respected the mandate they were given by politicians. The word "domestically" was to ensure that we had a common front.
Right now we are working as an industry to develop a consensus with all the other production in agriculture. As of today, most of those positions have been discussed with the Canadian Federation of Agriculture and have been endorsed as part of their trade statement. That is the first step.
The next step is for the politicians to endorse those positions. Then we, as lobbyists, will follow the trade negotiators when they go to Geneva and we will ensure that they respect the mandate that they have received.
Senator Whelan: At that Uruguay Round, Article XI was removed. That, to me, was one of the most important things. As far as I know, no political party or farm organization asked that that be removed. You should be going to the Supreme Court of Canada and arguing, under the Charter of Rights, that they took something away from you without discussing it. Some people think that we organize supply management in Canada outside of the laws of the land, outside of the international laws. We organize it within the rules of GATT. We follow the rules strictly. Removing Article XI from us is the most undemocratic, unsolicited type of operation.
I ask you again: Who was looking after our interests there? I do not think anybody was looking after them.
Mr. Doyle: I was there. You are right, when we came to the crunch of the last round, Canada was still supporting Article XI after the Japanese, Koreans and a few other countries had negotiated a deal for their own problems, whether those were with rice or other commodities. That was in December 1993, a couple of weeks before the end of the negotiations. The governments that were new to the negotiations looked at the situation. The deal was closing. The U.S. and Europe had made a deal and they were not going to negotiate any further. That was the end of the Uruguay Round, and Canada had to make a political decision as to whether or not it would withdraw from the round after seven years of negotiation and maintain a position on Article XI or negotiate high tariffs in place of Article XI.
It was not supported by the industry. We wanted to win Article XI and we fought for seven years until the end. However, that is the reality of what happened. The decision of the government at the time was to let it go, to drop it.
Senator Whelan: I have experience attending international meetings. I have made myself available to many producer groups all over the world. They were all envious of the program that we had for supply management and for allowing the farmers to have some say in the marketplace.
We are going back 50 years to the horrible system that they call the free market system, letting the market decide where it will be. We are returning to a state of chaos, to a state of piracy. We talk about globalization. We had globalization in the form of pirates and the slave trade, so it is nothing new. Now we take the industries to the slaves.
I am still in a state of shock. I remember meeting farm groups at OECD meetings, although I did not go to Europe with the committee. I cannot believe that your producers in this country know what you are submitting in this book. I would be asking to reinstate what they stole from us, what they took away from us. When I see who is running for president in the WTO, I know that the Canadians do not have a chance. New Zealand and Australia voted with the United States in favour of rBST, but in their own countries they do not let anybody use it. The United States is backing New Zealand so that they will have a tool running the WTO if the New Zealander gets elected. France's representatives will vote for the man from Malaysia. I am extremely suspicious of those organizations.
Do you really believe that there will ever be free trade?
Mr. Doyle: No, I do not believe that there will be free trade. I do not believe that, in its true form, free trade in the agricultural sector would actually make a better world. Planning production with demand, as we do in supply management, is still the best way. If we could do that on a world scale, then we would have better consumers, better producers, better industry and less surplus and distortion.
Having said that, the WTO is on a course of establishing rules, which may be irreversible. In fact, supply management was introduced in this country because we are affected by the distortion of other countries. I believe in some discipline in the market. I believe that the WTO can be a vehicle not necessarily to lead to free trade, but to introduce more discipline into trade. The way to do that is exactly what we are pushing, and that is to establish rules. Forget about those guidelines. Forget about the dirty tricks that the big countries are playing. We are never going to win at that game. But if you establish rules, we will follow them provided everybody else follows them.
I will not agree that we do not have democratic process. The farmers in my organization do understand what is in this binder and they do support it. Two days ago 300 farmers gathered in Ottawa. They represented the leadership of the provincial organizations of the five national organizations. We spent the whole day making presentations and answering questions. There was a unanimous endorsement of this thing.
The reason I am reacting to this particular point, Senator Whelan, is because I am very proud of the fact that our dairy producers and our supply-managed producers in this country are the best informed of any farmers in the world about the trade challenges and the negotiations. They were in the Uruguay Round. I have travelled around the world and you have travelled enough. You will not find farmers anywhere in the world who are better informed about the challenges of those negotiations. We will need the same level of knowledge in the next round.
Senator Whelan: I spent nearly my whole career in farm organizations trying to make a better way of life for farmers so that they would have some say in the marketplace about their product. If your organization had really been democratic, you would have asked me to address your group. I was offended that you did not.
I was chairman of the Agriculture Committee when Harry Hays, Senator Hays' father, was Minister of Agriculture and we put the Canadian Dairy Commission into effect. I should like to be there, like the chicken that ran halfway across the road, to lay it on the line. I do not think Mike Gifford is representing you people properly. I have known Mike Gifford for 30 years. That is why I asked who is representing you. Unless he has changed his stripes and somebody is there to make sure he is doing those things, I would not trust Mr. Gifford to trade one little baby chicken for me.
John Shannon, who represented finance, would not even sit in on the meetings because that was too low for him. Those were the kind of people doing the negotiating. I tried to get information from them on the exchange of notes, the exchange of conversations, what cocktail parties they attended when they were making those side deals. I could not get anything of significance from them. You should be demanding that secrecy disappear from this kind of an operation.
We are talking about democracy and a new world order. I hear these ministers talk about the new world order and globalization, but it is not "globalization": It is "gobbalization." Five companies in the world are continually grabbing more control of the chemical industry, the seed industry, the fertilizer industry, the marketing industry, the processing industry. They will represent 80 per cent of the food industry in the world.
I would have loved to have been invited to your meeting with 300 farmers.
The Chairman: There is a danger -- and farmers are concerned about this -- of one farm group trading off against another. I do not think farmers, whether under supply management or in the free market, the Cattlemen Association or the grain producers, want that. Yet, it is a difficulty that we face. When it comes to trade, you are dealing not only with agriculture, but also with all other commodities.
You can go to any farm in Canada and see John Deere machinery, International machinery, and Case machinery that is made in the United States. Farmers spend probably 75 per cent of their income buying machinery that is made in the U.S. There are no tariffs on that machinery at the border. There is free trade on machinery. Yet, it seems that we have never made that point with the United States. They cry about grain going into the U.S. and seem to make no recognition of the fact that we spend about 75 per cent of everything we make in buying U.S. machinery.
How do you bring all this together under trade? Other industries are involved as well. It is a vast area of concern. I want to hear your comments on that, although I do not expect that there is a quick answer.
Our position as a committee is to put forward some of the problems that we face in agriculture.
Mr. Doyle: I should like to deal with an issue that Senator Whelan raised. I have heard the comments about the issue of trade-offs and the issue of the negotiators many times before.
Allow me a personal view on Mike Gifford. I, too, have known Mr. Gifford for 20 years. I was very close to him during the negotiations. While we were in Geneva we met with the other negotiators. To find out whether or not your negotiator is fulfilling his mandate, you talk, not to him, but to the representatives of other countries and find out whether he is presenting our arguments. That is what we do when we are in Geneva.
I can assure you that Mr. Gifford was fully meeting his mandate in agriculture. There was not a single negotiator from any other country participating in the negotiations on agriculture who did not fully understand the position of Canada. You need a clear mandate and a negotiator who follows the mandate. That is the issue about evaluating a negotiator.
You also raised the issue of trade-offs. It is hard for people to understand that if you do trade negotiations, you do not have trade-offs of some sort in the end. As unbelievable as it may seem, that is not what happened. The grain people will tell you that, the dairy people will tell you that, the beef people will tell you that, and anybody who was in Geneva at the end of those negotiations in 1993 will tell you the same thing. All the commodities were there. The U.S. and the EU tabled their positions. We all did a schedule for our own specific commodities, and there was no trade-off.
The grain sector did its own tariff lines. We did our own tariff lines. We ended up with our own negotiation on access and so on. There was no trade-off because we had to follow the U.S. and the EU. Obviously, they may have had trade-offs between them. However, in Canada there were no trade-offs between the different commodities. Every commodity worked on its section, and that is what made the final offer. It is difficult to imagine, but that is how it went. The real trade-off happens with the big countries, the U.S. and the EU. They may be doing trade-offs between them and we are stuck with it.
Look at how much time we spend on definitions and on figuring out how much of our agricultural program meets the green program. The U.S. and Europe have no difficulty finding out exactly where their programs fit because they designed those definitions. Their programs are almost a definition of what they do. We have been trying for year to fit our stabilization program somewhere. None of those definitions, even though they are generic categories, fits the Canadian system. That is true for supply management and it is true for other programs that we have, regardless of which side you want to deal with in terms of marketing systems.
Senator Whelan: Mr. Doyle, can you get me a list of who attended the first meeting in Uruguay when Mr. Mazankowski, the minister of the day, signed away some of the dairy industry? You know that they signed away some of the dairy industry in Uruguay. I have it documented here.
Your organization and some of the other organizations have paid no attention to Mel Clarke, who is one of our main trade people. He documents it. Nobody has ever called him a liar. Nobody has ever said that he was wrong. I trust Mel Clarke when he says what we gave away at that first meeting when Mr. Mazankowski was Minister of Agriculture.
Who was the advisor there? I am told that it was Mike Gifford. He let Mr. Mazankowski, a new minister, give away what the dairy farmers and the provinces had fought for and built. They had built one of the most successful dairy industries in the world. They were chipping away at it. Who wants it? The United States of America.
Harry Hays and the Agriculture Committee put the dairy commission into effect because we were being inundated by cheap products. René Lévesque was elected in Quebec because of the cheap dairy products coming in here. We did nothing at that time to help our farmers. We lowered the price for cheese and so on 65 per cent in three months.
I remember going to the OECD when Jacques Chirac was the Minister of Agriculture for France. They were ready at OECD to give away supply management then. Needless to say, I raised hell and Mr. Chirac supported me at that meeting.
There has been bad leadership. You have to believe in something very strongly to propose it. Mr. Glickman, the Secretary of Agriculture in the United States, wants to go back to where they were under the old system. The congressmen and senators are all saying that this is not working. I am sure you are aware of that. I cannot believe that the European farmers will give up anything under the World Trade Organization.
Senator Hays: Some very good points have been made in this exchange between the chair and deputy chair. The highlight, it seems to me, is that the health of the supply-managed agricultural sector is to a considerable degree a domestic issue. It should be explained to Canadians that, in order to keep the supply-managed agricultural sector healthy, when it needs defending, governments defend it vigorously. The organizations representing the five commodities do a pretty good job of that, but the most risk we face is being undermined on a domestic basis, given the effectiveness that you were responsible for in the Uruguay Round.
I wanted to ask you about the sectoral versus comprehensive rounds. The story you tell makes us seem very strong on a sectoral basis in terms of looking at agriculture and what the others have done. Obviously, a comprehensive round presents some special risks because of deals made in other sectors, services and so on. I should like you to comment more on those two options that we will have to face, given that the U.S. wants to pursue it.
Mr. Doyle: We have not taken a position on that at this point in time. My personal view is that Canada might be better to seek an agriculture negotiation on its own. The Europeans are pushing for a comprehensive round because they know that they cannot deliver a great deal in agriculture. They are trying to justify a smaller deal in agriculture by having a bigger deal in government procurements or services. That is what this thing is all about.
My view is that because the agricultural agreements have to go after straight rules -- and that is a challenge of this next round -- you are far better to do it as an agricultural negotiation. I can be swayed in terms of the Canadian interest. I am not sure at this point what Canada will be pursuing in the services or general procurement negotiations nor do I have a good sense of how this next round should be.
My first reaction would be to have a sectoral round. We have a big job to do there. It is sensitive in Europe. This next round will be about targeting against Europe. Europe has over 80 per cent of all of those export subsidies. Of the 90 per cent, they have over 80 per cent.
Senator Hays: I appreciate that as an organization, SM5 or the Dairy Farmers of Canada, you have not yet made a decision on whether a sectoral round is a good idea.
You said that Canada might be better off seeking an agriculture negotiation on its own. Do you mean independent of the WTO?
Mr. Doyle: I meant agriculture on its own, on a sectoral basis.
Senator Hays: Going back to 1994, some of your numbers, which are 1995 numbers, show remarkable distortions in terms of what one would have expected based on the rhetoric of the deal that was made. What one expects, of course, is what motivates one to sign an agreement, and Canada did sign the agreement.
Was there at the time -- and should there be in the next round -- some negotiation for a results-based reference point, where you give up one thing to achieve another which you think is more valuable but which did not materialize because of categorization of support? I am thinking of the green or blue box, depending on whether it is the U.S. or Canada. On the Article XI issue, to the extent that that was a bargaining element, do we get that back in the event that we do not get what we expected to achieve by the negotiation in 1993? In other words, was that an element, or in future rounds could that be an element, of the negotiation?
We sometimes hear our negotiators say that they did this deal and they achieved an objective in terms of their reference responsibility. They were not responsible for services or steel or agriculture or whatever, but were responsible for something else. That bothers me. I know that those responsible for the final negotiation are responsible to ministers and so on, but they say that they did not have to worry about particular items, because the government gave them a set of concerns and those items were outside those parameters.
Mr. Doyle: You raise an excellent point regarding having some reference points. In our position, we bring elements that in fact establish some reference points. We are going to promote a cap on total domestic support so that irrelevant of the colour code, people cannot simply transfer a reduction into another category. You cap the total domestic support, regardless of whether they are green, amber, blue, de minimis or whatever. That is the kind of reference that you want to have. We have learned from the last round that there was too much flexibility there.
In part, you are talking about safeguards, although perhaps in a different context. That is another big issue. The safeguards were designed to do exactly that. World prices are supposed to go up because we are all reducing our trade distortion. However, if after I give access or lower my tariffs all of a sudden the price goes down instead of up, I want to be able to have a come back of some sort. That is what we call a safeguard. We are learning that the price does not go up for very long before it really crashes down quickly. What we thought we were achieving in terms of elimination of trade distortion and support was not really achieved. There were far more dirty tricks played by the big players. Thus, we are learning.
We do not have all of the solutions, but one step is to cap support and eliminate export subsidies. That is the only true solution. If the big players who have 90 per cent are cut by 50 per cent, they will still have tons more than we have and we will still not be competitive. We do not have governments that will triple and quadruple our green programs because we did not have competitive governments with other treasuries. All that is part of a process.
Senator Hays: A second point is that the negotiator, whoever that may be, should have responsibility for the full spectrum of interest, not just part of the spectrum.
Mr. Doyle: You raised the question of whether or not the negotiator should be responsible to a committee in order to have some transparency.
I say yes, to a point; but you have to understand that you do not run a negotiation with 100 per cent transparency. That is a problem for Canada. Canada is more transparent than most other countries. Therefore, we limit our own trade negotiators and we limit some of our ability. It is like playing poker and showing our hands. You cannot bluff any more because everybody knows the cards you are holding. The U.S. and EU in particular are extremely good.
I am for transparency, and that is why we want to inform our producers. We want people to understand. But there is a limit to that. How do we do that? We have a very good relationship with our organizations, and most confidential documents are actually shared on a one-to-one basis with those organizations. There is a SAGIT committee that has access to confidential information, strategic and otherwise. The debate is very good there. We keep the system clean in the sense that we also have people working for us in Washington and in Geneva. If there is something going on, we check out whether the information that we get is actually what is happening there. There are checks and balances. People have learned to play with us. They know that we have access to that information and that keeps the system honest. They are not going to hide information from us.
I am not saying that there will not be loopholes, but, knowing exactly what is going on, we can develop a good position. That is key. How you go from there beyond the political round in terms of the mandate, this tends to be a little broader than the details. I agree that you should make sure that the politicians, whether in the Senate or in the House committee, understand the mandate and understand what the negotiators are faced with so that they can have an influence on the mandate. There is no question that the politicians drive the mandate.
Senator Hays: If the Uruguay Round has done one thing, it has sensitized everybody -- the stakeholders, including the supply-managed sector, and the politicians -- to the importance of being in early, being aggressive and understanding what is going on.
Surely, the issue of transparency would be one of Canada's objectives. To the extent that we must have transparency, we need to insist that we should like to see the same transparency from others in terms of a fair negotiation. You do not have a fair negotiation unless people are playing on a relatively even terrain.
The U.S. has so many private and confidential elements. We should be drawing attention to that because they dump on us all of the time for not having transparency when in fact their level of transparency is infinitely less than ours. I think that that is what you are saying and that would be my own intuitive understanding of it as well.
On the total measure of support, that is a domestic issue. In most measures outside of Canada, they roll in the PSEs and the difference on consumer commodity price as a way of calculating how Canada supports agriculture. We in Canada do not understand the rationale and justification for that. In other words, you cannot have an agricultural industry at 16, when you are competing in a world where the others are at 32 or 43. Is that AMS that you are referring to? I do not know.
Mr. Doyle: Part of it is AMS, but I am referring to total support.
Senator Hays: How are you going to run a railroad when you have a different set of rules from those you are competing with? If those you are competing with under whatever form -- blue, green, amber -- are receiving a much higher level of support, then that goes into their base operation and that puts them on a different level. It seems to me that that is a domestic issue that is not well understood here -- certainly not, when you look at the government of Canada's position on green programs.
Mr. Doyle: This is a good point about the confidentiality issue and transparency. We are in a privileged situation as organization commodities, because we have established a very close linkage with the negotiators and the people who are doing the analysis within the department. We do have access to a whole series of confidential information.
Having said that, there are two sets of processes going on. In the WTO, for the last year and a half they have been going to what is called the analysis of information exchange. Each country presents a series of analyses. In fact, some of our numbers come from those analyses. They analyze what is wrong with the WTO or the Uruguay Round, and determine what kind of different administrative measures were taken, and the pros and cons of each of those. There were 44 documents presented on the AIE process. It is extremely valuable as a process of information in understanding the challenges for the next round. We need to understand not necessarily the position of each country, but the issues and the details of these issues. We are privileged to have all this information within the concept of working with the negotiators. However, this is confidential and is not transparent.
The other thing that we have that is confidential to the public is Schedule 4 of the offer of each country. Let me explain what that is. Schedule 4 is the explanation of how each country arrives at its numbers. I have given you the problem of what these numbers are when you do this type of analysis. But if you want to understand dirty tariffication and how each country has dirtied up its offer, and the tricks they have used, this is the schedule to use. This is the only schedule that has been kept confidential. We have it as an industry, because we need to work on it; we need it in order to prepare the negotiations; we need it to prepare the arguments.
Everyone thinks that 3 per cent and 5 per cent is what everybody gives. That is not true. You cannot demonstrate that until you actually go to these schedules.
Senator Spivak: Mr. Doyle, you have confirmed my worst suspicion, which is that all this technical stuff merely masks brutal politics. What is the strategy for leveraging a position of greater strength? Perhaps the smaller countries should get together to make a more level playing field.
Is the Government of Canada going to take the position that you present? Do you have enough influence with the government so that it will actually carry forward your position?
Mr. Doyle: The issue will not be whether we have enough influence as a single organization. The issue is that we have tried to design something that the beef producers, the pork producers, the dairy producers, and the chicken producers could actually endorse, including the processors and the other sectors.
As an industry we have to go to the government, and to the officials, and tell them that we have done our job and have reached a consensus of all the commodities on a single position. The strength of Canada's influence in the Cairns group and the WTO is that we do not make the position of Canada a domestic fight, whether it is regional or whether it is commodity against commodity.
In our travels around the world, we keep reiterating the same message. Essentially, it is that we have designed a strategy that is not concentrated only in Canada. We will try to develop a strategy that shows what the world is doing. For example, if the U.S. wants to go higher than 5 per cent, they will first have to put on the table the 2.5 per cent that is missing; then they can go beyond that. In other words, we should not allow any more access on anything until they clean up their act and join us. That is part of the strategy. But for that you have to put the numbers on the table.
Senator Spivak: We owe our lives to the United States, because 80 per cent of our exports go there. Is that not bargaining with two hands tied behind your back?
Mr. Doyle: There is no question that we are not as big as the United States. We do not have the same influence and we are very dependent economically on the relationship that we have established with the United States. However, when you get into the WTO, there is the United States, there is Europe and there are 132 other countries. While it is true that the U.S. has a lot of influence, the other 132 countries also have some influence. In other words, they are also very dependent on trade. If we want to continue to work within the WTO, the challenge for us is to make sure that we have a much more common view with the other 132 countries. You are right that that is part of the dilemma.
Senator Fairbairn: I do commend you for your determination to try to bring all of your diverse groups together. That is something we also heard from the Canadian Federation of Agriculture. It is something that was learned from the last round, to try as much as possible to achieve a Canadian consensus at both levels in order to strengthen our position.
In this run-up to the beginning of the negotiations, are you satisfied that you have as sufficient access as you would wish to our government and the people who are working on this issue? You have a good relationship among each other. Is that also developing into a good consensual relationship with government?
Mr. Doyle: I would say at this point, yes, very much so. We have been on a few panels -- particularly in my case -- that involved the same people who do these negotiations on trade disputes. That has been the case since the Uruguay Round. We have always continued to have this build-up of a good relationship with staff. Therefore, I am quite satisfied right now that the exchange of information is there with some of the technical people. They are fully briefed. Those who want to find out what is going on within the confidentiality process that I explained earlier do have access to that particular process. We do pay a lot of attention to ensure that that happens. It does not happen on its own. You have to ensure that it happens, and you have to show some interest if you want it to happen. The fact is that they are cooperating and collaborating with us significantly.
Senator Fairbairn: That is one area in which a committee like this can put in its oar as well.
Mr. Doyle: We will let you know if it does not work.
Senator Whelan: The other day I heard a farm leader say that if it were really free trade there would be one page of documentation, but, I think he said, there are 10,000 pages. Have you ever read all of that documentation, Mr. Doyle?
Mr. Doyle: I read a whole chunk of it. Jonathan Fried, from the International Trade Agreement, was a speaker at our conference two days ago. He told a joke about the prayers to God having so many words, other things having so many words, and then the manner in which the United States establishes prices for cabbage has 15,254 words. Even though people want to talk about free trade, there is a large amount of wording and most of it does not necessarily lead to the ultimate good.
Senator Whelan: We have now banned rBST here. We carefully watch what is happening between the State of Arizona and the State of California. California has fortified milk; Arizona does not. Arizona meets all the federal regulations, but they cannot export milk into the State of California. Do you think we should be able to stop the United States from exporting into Canada products that have milk ingredients from cows that have had rBST?
Mr. Doyle: Well, rBST is actually banned in Canada on the basis that it is a threat to the animals. In other words, it is my understanding that Health Canada is satisfied that the research that they have reviewed causes no threat to human health. The question you are raising from a trade perspective is whether a country, for animal welfare purposes, should ban trade.
I will leave the rBST issue. When Sweden, for example, banned cages for chickens, or had two different tariffs, one for caged birds and one for free-ranging birds, Canada and a number of other WTO countries opposed that strenuously. The danger of setting up all kinds of new barriers on animal welfare issues is absolutely tremendous. I know I am not answering your question, but the question is really: Where do you start and where do you stop? You can say yes to rBST and no to something else, but it will not be that easy to establish where to draw the line.
[Translation]
Ms Martine Mercier, Chairperson, Canadian Broiler Hatching Egg Marketing Agency: Mr. Chairman, I will discuss SM5 trade principles. The objective of the next WTO round must be to ensure that it will be profitable for Canadian farmers. It is not enough to ask for fair rules, no other country will do it.
Canada is presently at a disadvantage in view of the way we have applied the agreement, our own financial policies and the absence of export subsidies.
Canadian producers of eggs, dairy products and poultry support the negotiations on the condition that they lead to improved farm income and a better development of markets.
So-called free trade is not an objective in itself. The objective must be based on fair and effective trade rules. We believe that the negotiations will be effective only if we obtain a clear set of rules. We should also begin by solving the issue of commitments resulting from the Uruguay Round. High priority must be given to fully respecting the present commitments.
The WTO should be the main vehicle for the establishment of just and fair trade rules. All Canadian commodity sectors support this principle. This is clearly set out in the Canadian Federation of Agriculture's trade position. All trade negotiations such as NAFTA, Canada-Chile, Canada-Israel, et cetera, must be conducted in a coordinated fashion to ensure that the various trade agreements and rules will be complementary.
New trade commitments must not go beyond WTO commitments and disciplines. We need only look at the simple average fill rates to see that countries are not meeting their current WTO commitments. The "all members" simple average fill rate has fallen each year, while Canada's has risen each year. In 1995, the members met 65 per cent of their commitments, Canada 78 per cent. In 1996, the members had dropped by 2 per cent, to 63 per cent, while Canada's had increased to 85 per cent. In 1997, the members had fallen to 46 per cent, while Canada had increased to 91 per cent.
There should be no trade-offs between Canadian agricultural sectors, as well as no trade-offs between agriculture and other industrial sectors. Again, this principle appears to be obvious, but within agriculture, no deal should be made to seek gain for one commodity -- and export interests perhaps -- at the expense of another commodity. Likewise, agriculture should not be traded off against another industry sector. Agriculture must stand alone and be identified as a unique sector.
Trade negotiations must focus primarily on the elimination of export subsidies. Canada is eliminating export subsidies -- the most distorting of all possible trade actions. Last year, a Canadian farmer who grew high quality No. 1 spring wheat received about $185 per acre in total, while a U.S. farmer received $200 per acre in subsidies alone. The U.S. and the E.U. are responsible for more than 90 per cent of all subsidized exports -- 94.5 per cent of subsidized butter, 95 per cent of subsidized cheese and 99 per cent of subsidized eggs and poultry. Canada cannot compete with the treasuries of Europe and the U.S. Complete elimination of export subsidies must be a prerequisite to serious negotiations.
Canada must obtain the full equivalency of rules-based minimum access levels. We need to pursue full implementation of the WTO minimum access commitments already made. The minimum access must be real and achievable with no other barriers and must be at zero tariff. Rules must be established to govern access to prevent situations such as desegregated or country-specific access.
TRQs must be subject to rules that ensure the level of access committed is achievable. Over-quota tariff levels must be maintained to ensure no more than the intended access level.
The WTO Secretariat has reported significant discrepancies in member countries' effectiveness in providing access to their markets. These discrepancies clearly indicate the need for a thorough review of all members' TRQ administration. Canada must not offer additional market access until the other countries adopt TRQ administration policies that encourage full utilization of their within-quota access and rules are applied consistently across all countries. The U.S. has granted country-specific allocation for ice cream to Jamaica -- realizing that Jamaica could not fill the allocation. Country-specific TRQ allocations need to be eliminated.
Sanitary and phytosanitary measures that are not science-based must be eliminated. For example, while Australia has no tariff for chicken imports, they do require that any poultry being imported be cooked at 70 degrees centigrade for 143 minutes. We consider that such a product is no longer eatable.
Canada must seek greater discipline governing domestic support. Canada does not support its farmers the way the E.U. and the U.S. do. We cannot compete with those treasuries -- $1 in Canada, $2 in the U.S. and $3 in the E.U. There has to be an overall limit to domestic support expressed as a percentage of the total value of production. The blue box must be eliminated. If it cannot be eliminated, it has to be clearly defined to ensure that it does not include programs to impede trade. The U.S. Freedom to Farm program pays $1 per bushel to U.S. farmers for wheat -- even if it is not grown, provided it was grown in the past. Despite all-time record high prices in 1998, U.S. dairy farmers were given a $200 million subsidy.
[English]
Mr. John Stolp, Chairman, Canadian Turkey Marketing Agency: I am a turkey farmer. My farm is about an hour outside Toronto. I farm for the production of turkeys for the processing industry, as well as the breeding industry. I supply fertile hatching eggs to hatcheries.
Mr. Chairman, what we are going to do now -- that is, John Kolk, John Core and myself -- is to take the principles that you have just seen and break them down into further details and further examples to demonstrate why we are putting these principles forward.
As a turkey farmer and as chair of this agency, I have always fought for -- and am fighting for today and will continue to fight for -- the system of supply management within this country. That will not change. We want to present a unified agricultural position for the next round; this is not a balanced position, nor a position we need to balance between one commodity and the other, but is something that is unified that can be backed by all of agriculture. It is our hope that we will be able to demonstrate to you that this can be one unified position.
I will be dealing with export subsidies. Our first point is to eliminate all government-financed export subsidies. This needs to be a primary focus, as they are the most distorting of all trade measures. The use of export subsidies by countries is also highly distorted. Canada has already eliminated all of its export subsidies. The last round required, as was pointed out by Richard, 36 per cent reduction of expenditures and 21 per cent reduction of volumes. Canada has gone 100 per cent -- full elimination of our export subsidies. The U.S. and the EU, however, account for more than 90 per cent of the use of subsidized exports. Allow me to present some examples.
In poultry, the EU has the right to export almost 300 million kilograms, which represents more than one-third of all the poultry production we do in this country, with $160 million worth of export subsidies. How do we compete with that? The simple answer is that we cannot. If you did not use export subsidies before, you cannot introduce them now. We have no way, even if we wanted to, of introducing export subsidies for poultry because we never used them in the past.
The position that we are presenting here gives us an excellent link to all of Canada's agricultural sectors and is a vital plank in what we would call our Canadian position. Let me just reinforce the point that $185 was received by Canadian farmers for the sale of No. 1 spring wheat in the marketplace; $200 was received by the EU farmers in subsidies alone. We need to focus on the elimination of export subsidies.
There needs to be stringent WTO trade rules on international food aid, export credit and export promotion programs. In focusing on the elimination of export subsidies, we must make sure there are disciplines to prevent export subsidy circumvention. The U.S. has once again come out very strongly on eliminating export subsidies in this next round. However, that does not tell the whole story. The U.S. has found other means to support its agricultural exports.
Allow me once again to present some examples. Under promotion programs, the USDA has provided to the United States Poultry and Egg Export Council $4.4 million for use in promotion. In Hong Kong, they have provided $400,000 to a restaurant chain to help them pay for their menus, to help them pay for their packaging on their takeout of chicken products, provided of course that that chicken is U.S. chicken.
Under food aid, the USDA has put together a large package for Russia, which includes 500,000 tonnes of poultry at a value of $300 million U.S., plus $5.5 million in transportation costs. We have to make sure that there is discipline on how food aid, export credit and promotion programs are being used so that they do not become just another form of export subsidy.
Let me give you one last example that I just found out about yesterday during our meetings. A Canadian further processor has sold a lot of poultry products into Cuba. He is now competing against France that has provided $200 million as a line of credit at zero per cent interest rate for that same country. Canada is not providing our Canadian further processor that sort of dollars, that sort of backing, but, yet he has to compete against the country of France to the tune of $200 million at zero per cent interest. Those are the things we must be aware of. Those are the sorts of things we have to have strong disciplines and understanding on.
I will now ask John Kolk to deal with the issue of market access.
Senator Whelan: You have omitted a very important fact. Yesterday was the 25th anniversary of the Turkey Marketing Board, was it not?.
Mr. Stolp: It certainly was. In the interest of saving time I did not want to get into that, but in my presentation to our annual meeting I did stress the fact that we are going to be here for many, many, many more years.
Senator Whelan: It gives you some idea of the expertise of this committee.
Mr. John Kolk, Chairman, Chicken Farmers of Canada: Senators, thank you for providing the agriculture sector with an opportunity to comment on the state of agriculture and the effect of international trade agreements and future international trade agreements on agriculture. Before I go on to the market access issue, it is important to introduce myself as a farmer. I come from the Picture Butte area, close to Lethbridge in southern Alberta. We are in an agricultural area that is genuinely interesting and probably unique.
I want to point out the type of sectors that I am involved in. I farm with my brother and my father a farm that was started by my grandfather years ago. We have a cattle feed lot, a cow-calf operation, oil seeds, grains which go to export, hay which goes also to export, and chickens and turkeys. We are a multifaceted family farm. The key point is that we are presenting something that I, as a farmer in southern Alberta, with neighbours who are in sugar beats and potatoes, hogs, dairy, chicken, turkey and eggs, can stand here and say that this is an opportunity for Canadian agriculture. I can look my neighbours in the eye and say that this is an opportunity for all of us.
Canada's trade position has to be good for agriculture and agriculture producers. It has to be a unified pragmatic trade position that is aggressive both internationally and here in Canada. On market access, over-quota tariffs or tariff equivalents must be maintained at their current level. This is very important to supply management. It is absolutely critical that we maintain the over-quota tariffs.
There are three levels of tariffs out there, and I will go into this a bit further at a later stage. Over-quota tariffs are essential to the functioning of supply management. The tariff-rate quotas were implemented as part of the Uruguay Round. We had Article XI and various other countries had other interests. All of those were turned into TRQs, or tariff-rate quotas, so that in replacement for Article XI there were TRQs put into place and countries put forward those numbers. They are the conversion of those non-tariff barriers into transparent tariffs of equivalent effect. Essentially, they are replacement of the lost GATT Article XI.
We, as poultry farmers, did not want that to happen. We fought very hard for Article XI, but it was viewed as trade liberalizing. In other words, it has happened, it is done, and we are on to something else. We are not here asking for a replacement or a reinstatement on that issue. We understand where it has gone and that is what we are going to work with.
The function of those replacements was to ensure that there was no more access than the committed level of the TRQ. In chicken, for instance, 7.5 per cent of Canada's production last year is allowed into the market this year from the U.S. The intention of the TRQs was to make sure that they fully blocked anything over that. They were there as a replacement. There have been those who have suggested that there is room to start to lower the over-quota tariffs to a safe level. We can start lowering the 283 per cent and 238 per cent to a safe level. Finding a safe level is tricky at best. The risk is not a little bit of access to our market over the 7.5 per cent in the chicken example, but it is 100 per cent access to our market. There are many variables to understand and to consider. One of the trickiest is over-quota tariffs.
I have a chicken example on this slide. Assume that in 1994 there was a 15 per cent reduction on an 80 cent dollar. So you have chicken at $1 U.S. at 280 per cent and a 75 cent dollar, which make the landed price of chicken $5.07. Over time, you have a 15 per cent reduction. By the year 2000, you have the $1 U.S. price for that chicken, plus 283 per cent of the TRQ at a 65 cent dollar. We have actually increased protection for Canadian chicken farmers by about 2.5 per cent.
Exchange rates alone were supposed to lower the protection for Canadian chicken. Because exchange rates have moved from 75 cents to 65 cents, that has actually increased the protection. More important, and more worrisome in many ways, would be if we had an additional 15 per cent over the next number of years and the dollar value changed again. In the year 2000, $1 for the U.S. product plus 235 per cent TRQ at 65 cents lands it into Canada at roughly $5.20. The impact of currency is what is important here. With a 15 per cent reduction, you then have, a number of years hence, a $1 U.S. product, 202 per cent TRQ and an 80 cent dollar. The opportunity for that to happen is definitely there. Suddenly, the landed price is $3.78. What was supposed to be a 15 per cent reduction has turned into nearly a 30 per cent reduction.
That is the danger of saying, "Let us try and find a safe level." There are other factors, but changes in currency alone could vary from going the opposite way to something that is double or triple what we had expected to happen.
That is one example of the Russian roulette game that we play when we try to reach a safe level for over-quota tariffs.
The next point under market access is that we need clear and precise rules governing market access to ensure that market access is equivalent. The Uruguay Round agreement was based on guidelines rather than binding rulings. You have heard this from farm organizations before. Often there is a perception that we follow them as rules in Canada. Canada implemented these as if they were rules. Others, in their own interest -- and there is nothing wrong with that, looking at it from another country's point of view -- creatively interpreted these guidelines to their own benefit. While all countries are honouring these commitments, they are not equal. In other words, they did not all apply them as if they were rules. In the WTO, 5 per cent minimum access is not necessarily 5 per cent.
The best example in Canada is the broiler hatching egg people, whom Martine Mercier represents. Access into Canada is 21.1 per cent. In chicken it is 7.5 per cent. Sixty million kilograms of chicken will be coming in from the U.S. this year. They have full and real access and, in fact, even beyond. In turkey and eggs there is 5 per cent access. The dairy farmers of Canada in the dairy business are at 4 per cent, which is better than the U.S. and the EU. In the EU, poultry and pork is less than 1 per cent access; dairy is at 3 per cent. For our free-trading friends to the south, their dairy is at 2.7 per cent access. In addition to the low dairy access, the U.S. has also reduced -- not maintained but reduced -- Canadian sugar access. For my neighbours that is a very, very big deal. For many years they were accessing the American market on sugar. The Americans actually reduced their access under the WTO.
We have no reason to be on the defensive. Canadian farmers have given at the office and they have given at home. We have done our part and we have done more. As Canada, we only have 21 of 1,370 tariff-rate quotas worldwide. Our TRQs do not just cover supply-managed commodities. They cover wheat, barley, oats, margarine and beef in Canada.
Furthermore, despite guidelines for a minimum 15 per cent tariff reduction, the U.S. and the EU did not reduce most of their in-quota tariffs as part of the Uruguay Round.
The next point on market access is eliminating all country-specific tariff-rate quota allocations. This one, in particular, is of interest to the supply-managed commodities. All of the supply-managed commodities are in the process of beginning to export. As we begin doing this, country-specific allocations, such as the Jamaican example that Richard talked about earlier, shut us out of export markets. Even if an increase in access is negotiated, it will not help the broiler producers, the turkey producers, the egg producers and the dairy producers of Canada. We do not have any historical access to some of these markets.
Six years ago the Canadian chicken farmers exported less than 1 per cent of their product. This past year we were at 7 per cent. We are creeping into the market and it has taken us time, but we have not been into, for example, the Saudi Arabian market. So country-specific TRQs, like the Jamaican ice cream example, would lock us out of the Saudi Arabian market. They would reduce our potential in the Hong Kong market or various other markets.
There have been critics, within agriculture and without, who have questioned how Canada can seek more access and not want to give more. I would like to ask the question: How can egg, dairy and poultry farmers be asked to give more access to their market, but be locked out of the opportunity to go into new markets? That is a very important point. As we change and evolve, we will need access to some of those markets, but country-specific allocations will lock us, as growing exporters, out of those markets.
The next point -- and this one is along the lines of our "first things first" concept -- is that we need transparent, effective and binding rules governing TRQ administration to ensure that the committed level of access is achievable -- not guaranteed, but achievable.
Another point is market access. Countries should not use administrative measures to circumvent their access commitments. You set up a TRQ administration that makes it very difficult for access to occur. As was shown earlier, our tariff-rate quota fill rates are close to 100 per cent in Canada, while the WTO average is 65 per cent. Market competition may account for some of that difference. In other words, in margarine, our fill rate is not complete either, but it is market competition that picks up that issue. They cannot afford to ship it into Canada because of our low prices.
However, while market competition may account for some of that difference, it is clear that some countries are using administration methods to frustrate access. One example is import licensing. Another example is auctions and lotteries. In other words, they auction off in how they give internal domestic buyers the access to what is coming in from outside. Domestic production criteria, the Swedish example on cages, is another method, as is country-specific allocations.
These questionable practices on the administrative measures must be cleaned up and they must be a part of our Canadian negotiating position.
We would like to maintain the right to designate the importers, provided it does not impede the level of committed access. That is the second part of cleaning up these rules. In Canada we should be able to maintain our right to determine who can import the products. We have a TRQ administration that has been in existence for many years. It has been the counterbalance and it happened with our supply-management structure. How that happens should remain a domestic policy decision. If we want to focus it on our further processors or retailers or restaurant people, that certainly should be allowed to continue to happen; but it should not be something that is put into place so that the TRQs will not be filled. In other words, if you give it to a farm organization that has no commitment to bringing in rice, a Japanese example for instance, the access for rice is given to a farm organization that basically stockpiles it and ships it off to Indonesia. That is not the intention of domestic control over it. There still must be the opportunity to bring that product in.
In-quota tariffs should be reduced to zero. I had talked earlier about over-quota tariffs, the high examples that you hear that are there as barriers to product coming in. Then there are in-quota tariffs. That is the percentage that is on the 5 per cent access. This, I would like to remind senators, is a very bold position for the supply-management sector. This is going up front and putting something on the table that is genuinely going to affect our operations. In order to have a Canadian agricultural position, it is important that we are able and willing to put this on the table.
In-quota access should be clean access. We have to be able to have genuine access. Within Canada, as I talked about earlier, we have nearly 100 per cent fill rates. This position will smoke the pseudo-liberalizers out of the closet. There are countries that stand up and say they want free and open liberal trade, but their fill rates are incredibly low. This one is going to help bring some honesty to the negotiating table in the next round of WTO.
Our most-favoured-nation tariffs in Canada are generally below 10 per cent. Our proposal here and the position that we have is that we reduce those to zero. The impact is reduced, however, as most of our in-quota imports come from the U.S. and those are currently tariff free. Many countries have in-quota tariffs in the 25 per cent to 50 per cent range and some of those are as high as 200 per cent. Reducing in-quota tariffs to zero will create meaningful access for Canadian exporters.
Anyone who comes from anywhere near Saskatchewan will appreciate this. The Japanese in-quota tariff on wheat is $100 a tonne. We ship approximately 1.5 million tonnes of wheat to Japan. Therefore, even without an increase in exports, a 0 per cent tariff would benefit Canadian wheat exporters and the farmers that they work with by $150 million. One country, one product. That is the impact of what we are putting on the table here, to bring the in-quota tariff rates down to zero.
Another benefit is that it legitimately and credibly creates three types of tariffs and opens the door to different reduction treatments. I have talked about those before. First, it is important to supply management to maintain the over-quota tariffs. They must be there to do what they were intended to do, and that was to replace the non-tariff barriers. Second, we must zero in on in-quotas. Third, there must be a maximum reduction in other tariffs. There are simple tariffs. For instance, one of the exporting nations in chicken, Brazil, has somewhere near 25 per cent simple tariff on chicken. If you want to try to get in there, you have to pay the 25 per cent. Those must be pushed down so that we do have access in other areas.
We have a very aggressive market access position from the supply management point of view; it is aggressive from the Canadian Federation of Agriculture point of view; and it takes into account the fundamental interests of the different parts of Canadian agriculture, including the beef industry, the pork industry and the grain industry. These are something genuine, and if we can achieve them they will have genuine opportunities and impacts for Canadian agriculture in a world where globalized trade is continuing.
Over-quota tariffs are essential, however, for supply management to continue to handle the domestic control that we currently have. The rules must be real. If it is at 5 per cent, it must be genuinely at 5 per cent, not just in Canada, but in the U.S., in the EU and the various other trading nations of this world. Access must be accessible by anyone who can bring the product in competitively. There should not be the country-specific TRQs. Clean up the tariff-rate quota administration. It is important that we go to a rules-based system and that those rules be transparent. It should be zero on the in-quota tariffs, which is a very aggressive position for Canadian farmers. Finally, working together with our friends and neighbours in Canadian agriculture is something that we had to bring forward.
Supply management is not the issue in the WTO Round. It is not on the table. We are working hard and have tried to craft a position that will allow supply management to continue to be a domestic issue. We need to continue to support it and fight for it as farmers, in order to collectively work together to market our products at a profit.
Mr. John Core, Vice-President, Dairy Farmers of Canada, Chairman, Dairy Farmers of Ontario: My brothers and I farm in Lambton county in southwestern Ontario. They actually do most of the farming. I come to things like this most of my time. We produce about 600,000 litres of milk a year and also grow corn, soybeans and winter wheat for sale off the farm. We are a mixed farm, like a lot of Canadian farms.
We apologize that the chairman of the Canadian Egg Agency is not able to be here today. The reason that there is not an egg producer here is simply that they are involved in other meetings today.
I want to zero in on the final two points of our position in our presentation to you. The third point that we would like to raise is that we need greater discipline governing domestic support, including a cap on total domestic support.
When Richard presented his opening remarks to you, he used the example of the traffic light. He mentioned that we are now in a situation where we have amber, blue and green domestic support categories. The problem is that most countries are becoming colour blind and they all look the same; they have all become green. That is the issue we have to deal with. We cannot compete with United States and European Union treasuries. United States and Europe, as Richard mentioned, have transformed most of their amber programs, or many of them at least, to most reduction commitments. Look at the U.S. farm bill; look at the European Union's Agenda 2000 proposals to reform Europe's common agricultural policy. The United States moves programs to green. The Europeans move programs to blue. We mentioned that, on top of that, last fall the United States spent $6 billion that they were not planning for in green programs. While countries argue that green spending is minimally distorting, when you make minimal distortion and multiply it by $6 billion it somehow gets a little bit bigger. That is one of the issues.
Under this category, we are saying let us forget what colour all of this domestic support is. Let us cap it. In 1995 the Europeans were at 40 per cent; the Americans were at 30 per cent; we were at 16 per cent. If we simply reduce it over time, that does not solve anything. Let us put a cap on it. Whatever that cap is, we are prepared to negotiate towards that. If it is 20 per cent, it is 20 per cent. If it has to be 30 per cent, it has to be 30 per cent. At least we will all know what the rules are for domestic support.
Europeans are not going to like us on this one. We simply say eliminate the blue box. It was only supposed to be there for nine years, but I know that in the proposals that are coming forth from Europe on their cap reform, they certainly intend to continue to have blue box programs far beyond the nine years that was originally agreed to. The simple message to Europe is: Eliminate the blue box.
When we look at green programs, we need to clarify the definitions of green programs to ensure that trade-distorting programs do not qualify, even within a cap. These definitions must be universal. We have to remember that the definitions were written mainly to satisfy American and European programs. As these green programs are non-actionable and not subject to reduction, the dramatic increase in the use of green programs creates a lot of concern for us. A WTO system for the prior determination of the green status of a specific domestic program must be established. Either we rein in the spending of others -- and this is another message that we want to leave with you -- or our government has to become as competitive in supporting agriculture as our major competitors. Either the playing field comes to where we are or we will have to raise our standards to join the playing field of other countries.
As a technical point, we want to maintain the measurement of domestic support at the aggregate level. This is this famous "aggregate measure of support" calculation. It is at an aggregate level now. We wish it to stay that way, because that simply gives countries flexibility in dealing with domestic policies. An aggregate measure of support should be maintained at that level.
The last point is the issue of sanitary and phytosanitary measures and the environment. These measures must be based on sound science and not used as disguised trade measures. If these measures are not based on sound science, there is a potential to open a real Pandora's Box of disguised trade barriers. As tariffs come down, these barriers become much more prevalent.
I will give you one example. I am not a chicken specialist and I am not a cook, but one of the Australian rules for chicken imports requires that the product must be cooked at 70 degrees Centigrade for 143 minutes before it can be allowed into their country. That is definitely a barrier to trade. It is of course based on a theoretical sanitation concern.
Turning to the environment, we believe that the Committee on Trade and Environment should become a permanent WTO body. We recognize that there is an interaction between trade and environmental issues and we feel that a permanent committee would ensure that the interaction is properly addressed. At the same time, we need to recognize that there has to be a balance between trade and environment.
On the one hand, countries should not be permitted to use lax environmental policies as a competitiveness tool. Contrarily, countries should not be permitted to use environmental regulations as disguised trade barriers. There has to be a balance between those two points of view.
That brings us to the conclusion of our presentation. I want to emphasize again the four elements. The four elements are: export subsidies; market access, which is both tariff-rate quotas and over-quota tariffs; domestic support; and sanitary and phytosanitary barriers. These are all issues that impact on Canadian agriculture and our ability to compete in the marketplace.
This is a consensus that we have reached through the supply-managed commodities. As Richard mentioned, most of these elements are contained in the CFA position. We will be meeting with other commodities across Canada in the coming months to see whether or not we can make this truly a consensus for Canadian agriculture. I am quite confident as a producer involved in both supply-managed and non-supply-managed commodities that we will be able to achieve this. This is a good place to start. The minister has called for a trade meeting in April, at which he is going to bring the Canadian agri-food industry together. We hope that these elements are the type of elements that end up being in the Government of Canada's position as we move into the fall and into the first stage of the negotiations.
The Chairman: I want to thank you for very detailed presentations this morning. I am very appreciative of the fact that you are all saying that you do not want to play one sector of agriculture off against the other, because we will all lose if that happens. While our treasury cannot compete with the European common market, and while we cannot compete with the U.S., we do have to send the message to Canada as a whole and to the government in particular that agriculture must be given some consideration, because there are some hurting parts in agriculture today that are suffering severely. I heard that coming through in your presentations today.
Senator Hays: We need friends at the table. We had friends for a while on supply management in Japan and Korea and perhaps some other countries. How are we going to manage that process in our best interests?
Mr. Doyle: If you look at our position, it will be difficult to have the Europeans on our side and it will be difficult to have the United States on our side. It might even be difficult to get New Zealand on our side with this position, even though they always claim that they have a free market system. When we say that we want to eliminate country-specific allocation in the administration of the TRQs, New Zealand will probably not be supportive of that. Most of the guaranteed access is always to New Zealand. They want to compete, but they want to guarantee that they have the access. That leaves some 130 countries.
This is our strategy: Once we have this consensus that we have been working on in these few past months, and which will continue until the end of April, we will start talking about it around the world. There are international forums. We are all members of the International Federation of Agricultural Producers. In my case, I am a member of the International Dairy Federation. I am sure that the other commodities have similar international groups.
We need to have this debate with our alliances, presenting the arguments as to where we are going. In the last round we had about 11 countries supporting Article XI, none of which were using Article XI. We used the time between 1986 and 1990 to talk about Article XI and to try to demonstrate to other countries that that particular position was to their benefit, that it did apply, even though they had not thought about it. That is the next step and we have to do that. In other words, it will not happen on its own.
Senator Hays: I mentioned Japan and Korea specifically, because they are large trading nations, as we are. We do an extraordinary amount of trade with them. They may be worth cultivating. That is my point.
Mr. Doyle: Absolutely.
Senator Fairbairn: It is encouraging and comforting to know of the amount of effort that all of you are putting in to be a team and not to have questions of trade-offs anywhere within the Canadian position, because that would certainly be a weakness, not only at home but internationally.
I know how hard John Kolk works. I know he works very close to the ground with individuals who are producers and also consumers. That makes me raise the question that whenever we see these strong positions being taken by various countries, whether it is the United States or Europe, they seem to have a much more activist and supportive consumer base behind their position that they take to an international table.
I would like your assessment of the sense of support that you feel you have from the consumers of Canada. I have always had a view that we in Canada take our production system for granted, perhaps because we have not been in the position of countries in Europe, where they have sustained war and famine and starvation. What efforts are you together putting forward in order that there is a greater understanding of how much it is in the interests of Canadians, not just to support you, but to convey their support to government as well? Consumer or public support does move government.
Mr. Kolk: That is something that we are always working on. I will use a chicken example to make it real, but that is not to say that that is not happening in each of the other sectors.
In the broiler chicken part of things, we understand that we have moved from a world where the producer was king to a world where the consumer is king. We are focusing our efforts in the production and marketing towards the consumer. We are taking response back from the consumer. Let me give you some good examples.
We are involved with all of our industry in something called "Fight Bac" -- in other words, "fight bacteria." When you come to some of the SPS issues, we are working together with retailers, processors and others to get information to the consumer about maintaining our food as safe. That is what the consumer wants and that is what we want, but we also want them to know that Canadian producers work together to make sure they are getting a safe product and that we are pushing our worldwide reputation forward to our consumers. We work together to focus on the consumer.
We must do more work to tell our story about the importance of Canadian agriculture. We must convey the importance of maintaining our standards, regarding food safety in particular, the health of our product, the environmental compliance of our product. On all of those issues, we are doing the right job at home. That is happening in the cattle business, where I am involved in various aspects.
If consumers know that Canadian farmers are doing the best job, then their preference is to buy Canadian products and to support Canadian farmers as they go around the world attempting to sell their product.
We had better listen to the European consumer on some of the issues that they continue to put forward. We know that some of what is happening is being levered by the farm groups there to keep Canadian product out. We must listen to their concerns, whatever they are. We cannot take a strict producer-based point of view to consumer issues. The effort and thought going into it will convince our consumer to also support our position. Farm groups across this country are moving from a production attitude toward a consumer-responsive attitude.
It is not easy to make trade appealing enough for people to say, "Yeah, we would like to support you on the trade issues." Mr. Doyle is good at it, no question, but it took him 20 years to get that good. Not many consumers want to do that. If we are serving the consumer, we have an alliance with them, and we will continue to work at it.
Senator Fairbairn: This committee has recently studied rBST. The power of the consumer aroused an understanding of the issue. Many of us were taken aback by an issue that no one had thought about being connected to milk. It became a powerful consumer issue.
As you would know, one of our most aggressive witnesses came from the dairy area. They told us not to mess with such an important product, in terms of its safety and health to Canadians. The ear is there to listen for the message and continue with it.
Senator Spivak: Thank you for a very interesting morning. It was informative and educational. It is wonderful to have you here.
In connection with rBST, the recent WTO panel found that Canada's limitation of market access for fluid milk was inconsistent with its obligations under the WTO. Does that mean that there will be a significantly greater inflow of commercial milk and that that milk may have rBST product in it? There is no law in Canada, as far as I know, that would prevent the importation of rBST milk even though it is banned here and we are not using it in Canada.
I do not understand your position that trade provisions and international agreements should be subject to full WTO discipline. I would give you the example of tuna and dolphins. Surely countries could say that that is interfering with their trade in the tuna industry. I do not quite understand how that will work out so that you have the environmental provisions in there and not have the same jockeying and fooling around that happens with all the other technical requirements. I am not clear on your position.
Mr. Core: Let me answer the rBST question first. Yes, the report of the WTO panel does draw some conclusions about the administration of our TRQ for fluid milk coming into Canada. We will not really know the result of that process until after the appeal. The appeal hopefully will be launched by Canada. The result will not be known until the summer or early fall. To speculate on that is difficult.
There is no regulation that would prevent rBST products coming into Canada. As Mr. Doyle said in response to Senator Whelan, the issue in Canada was decided on an animal welfare question, not on a human health question. Therefore, the whole issue of how you apply animal welfare-type issues when it comes to trade issues is a dilemma. Mr. Doyle gave a good example.
Senator Spivak: The European scientific community did find that there were problems with human health. Is that considered sound science?
Mr. Core: We are back to leaving it to the international level to come up with a final conclusion on that question. There has not been a report back on that issue yet. We continue to await that analysis. If there is an international decision, that creates a new set of parameters. That has not yet happened. I will turn to Mr. Doyle for the specifics on the environment.
Mr. Doyle: The issue about environment and trade deals with these agreements. It is true as well in labour. You have the International Labour Organization. The governments sign these agreements, and the same is true in environment, and then you have an international organization. There are no bones to it because there is no discipline. It is not transparent. People do not need to report. In other words, these countries sign these agreements, and you are not solving the problem.
The organizations created to address these international agreements do not have the same power of discipline and interaction as the WTO. We are suggesting that you create committees within the WTO, but not necessarily where you submit trade remedies. In other words, you do not necessarily have people justifying trade barriers. Actually, you would have the dispute settlement process, the transparency, the reporting, the notifications, all of which can be imposed through the WTO, as an organization that has many more teeth than some of the others.
Senator Spivak: Canada signed the Convention on Biological Diversity, but with a precautionary principle. It should be taken seriously, however, there is nothing but trouble on the horizon. I should like to know more about your position, but now is not the time for that.
Some of the Senate committee's potential was realized during the rBST debate because of the public education factor about Canadian farm issues. I would hope -- and I know others agree with me -- that we would utilize a committee like this to get across the message about Canadian farm products. I have learned a tremendous amount in my time here about the Canadian farm situation. I grew up in the Interlake on a farm. Nevertheless, I would hope that you would see that as a useful tool.
Senator Chalifoux: We did a task finding tour in Europe. The representatives from the European Union noted that they were using the consumer status particulars. They are beginning to use that in their negotiations and for their support. I found that out when we were discussing the genetically altered canola seeds.
I also learned that Canada is a bit player at the international level. You need the support at the international level when you are negotiating. Have you done anything to gain the support of the consumer, of Canadians? When you go to the supermarket and talk about the WTO, they know nothing about it. The only thing they are aware of that the Wheat Board has lost $9 million in its sales.
Are you gaining support so that, when you attend the high-level talks and negotiate, you are talking for Canadian consumers?
Mr. Core: At the Dairy Farmers of Canada, we are putting a significant amount of time into promoting the blue cow logo that advertises our products. When we do advertise, we now identify it so people understand that the diary farmers are responsible for bringing those good milk and good cheese advertisements.
Our research indicates that Canadian consumers trust Canadian farmers. Consumers do have concerns about new technology.
We are in a dilemma, which is part of our education process. The consumer has certain opinions on issues like biotechnology and so on. At the same time, they are only prepared to pay a certain amount for food. They are comfortable with the cost of food in Canada right now. We do not see a lot of concern with consumers regarding the cost of food because it continues to be some of the cheapest around the world.
There is a trust in farmers. Consumers believe the products are safe, and they want them at a reasonable price. They want them in good supply in their grocery stores. They want to be able to identify them as Canadian.
We are trying to build on those messages. We have been doing some surveys of pricing between Canada and the United States. Last fall, a basket of dairy goods was 39 per cent more expensive in the United States than in Canada. We are getting that information out to consumers because that perception has not existed in the past. We are building on that, and we will be taking these presentations to consumer organizations and discussing that with them and trying to build support. It is difficult to find representative groups at the provincial level in some provinces. We will continue to make those efforts.
Mr. Stolp: I will add to that issue on the cost of food. It is difficult to go to consumers with the detail that we would come with to you. I do not have the information or knowledge that Mr. Doyle would have with his 20 years of experience, but I can tell consumers about cost because that is what they are concerned about.
I will comment on Mr. Core's point about a typical food basket. The lowest cost price in Canada is based on hours of work needed to purchase that basket. We can take that information to the trade talks. We want to protect that, so that we do not find ourselves losing the cost advantage in our food products. That is the type of information that is important to consumers.
Mr. Doyle: If I may add a last point. We are concentrating now, as we explained, to try to develop a Canadian position. Working first with the agricultural sectors, we will move into general consultation in April to try to develop a Canadian position. The cabinet is likely to see a first draft of a position around June or early July. Canada will have a starting position before November.
We will know in the next few months the extent to which we have unanimity around a Canadian position. It is looking good, as I said before. Not that the consumer is second to this, but it is difficult to get into a discussion about consumers until there is a unanimity in the agriculture sector itself.
You raised the point that consumers influence politicians. We do understand that. Every year we do surveys on consumer attitudes about our products. They are done for marketing purposes. It has been expanded to issues like international trade, not technical issues like we have been discussing here but more general ones. For example, a recent study shows that consumers trust our inspection system and our standards in this country far beyond any other country. There is no question about that; it comes out very strongly. We will ensure that you will receive that type of information.
Senator Rossiter: I want to thank all of you for this excellent encyclopaedia. I shall be studying it.
Senator Whelan: I want to ask Mr. Doyle the same question I asked him earlier. I want our viewers to hear what he said about free trade.
Is there such a thing as free trade?
Mr. Doyle: My answer to you is that I do not believe that we will ever go into a real free trade. My view about the WTO is that it should not necessarily pursue free trade because I do not believe we will ever achieve it. However, we should have rules and discipline in the international market so that we do not let the larger players, like the United States and Europe, destroy the market to the extent that everyone is penalized. That is what we should aim for and that is what our position is based on. We are seeking rules, not guidelines. We want rules that are clear and applicable to all. Furthermore, if someone, small or big, does not play by the rules, we will challenge them. We should not be shy about attacking the other players. You will see the industry becoming more aggressive in challenging some of the large players even if we have significant trade with those people. If they do not play by the rules, we will have to challenge them.
Senator Whelan: One thing that annoys me is when you say that 132 countries were against this. There must be about 115 of those countries that could not export a chicken. They are against it! I know these countries and I know the potential of their productivity. I think that is so false.
Mr. Doyle: Let me clarify. I do not think the issue was that there were 132 against us. We will limit it not to the 132; we will limit it to the 40 countries that were in the agricultural country group, per se. You are right, many of them do not have much interest in agriculture. In 1993, Canada was the only one left supporting Article XI, after the U.S. and EU signed a deal. All the other countries were satisfied.The governments at that time had to face the reality.
Senator Whelan: The reality is that there are superpowers who give aid and countries who receive it. Ninety per cent of the aid-receiving countries would not vote against the United States of America lest their aid be cut off.
Ms Mercier, if you allow supply management in Quebec for poultry and dairy, what would be left in your province for agriculture? Could you compete internationally?
[Translation]
Ms Mercier: Yes, Canada subsidizes it. If the government cannot invest more money than it is presently doing, we can't do it. For hatching eggs, we prepared a study of points of comparison between the five provinces that are members of the Board and the State of Arkansas, which is our primary agricultural competitor. On the basis of the facts, we are equal to the United States in productivity. When it comes to the other costs, we fall behind. It costs twice as much to build a hatchery in Canada than in the United States. We cannot recover these costs, and labour is also more expensive in Canada than in the United States. This is partially because of the payroll deductions that Canada has chosen to implement. We breed species that are primarily American species, because most genetic development is carried out in the United States. Even though we would wish to increase productivity, we are breeding the same species as the Americans. When we are equally productive, the rest represents additional costs that we have to bear. Internationally, we are not competitive. If my hatchery is twice as expensive, I have to cover that cost.
[English]
Senator Whelan: If I remember correctly, some of these people tried to establish themselves in your province, but are now gone.
I find it difficult to believe that we are really talking about exporting poultry with our higher costs of construction, energy, and foods. Do you really think you can export poultry?
[Translation]
Ms. Mercier: Personally, I don't think so. Companies export a very tiny part of their total volume. We take a part of the profits that are derived from volume exports. Sometimes, these are surpluses. In Canada, we eat more white meat, but chickens always have two thighs and two wings. Genetics has not developed to the point of producing only the breast. So the thighs are exported. Obviously, white meat brings a higher price in Canada, and compensates for the export price. This works for a certain quantity. We could not export indefinitely at this rate, since it does cost us a little more. At the grocery store, I don't pay the same price for breasts as I do for thighs. This is how we can convert to exports.
[English]
Mr. Kolk: How can you export and domestically manage supply? That is a question that is often asked. I will use the chicken example, which Ms Mercier has brought in.
This happens in Canada, the United States, and Russia. That is why international trade can work, even though you are not necessarily the lowest-cost producer in the world. Canadian and American consumers prefer the white breast meat of a chicken. They want that white chicken meat on buns; they want it grilled; they want it marinated. If they go to a bar to watch a hockey game, they want chicken wings.
However, what they do not seem to want is the dark meat. If ours is a consumer-oriented industry, we will accept that. However, the Russians want the dark meat. It is a good source of protein and they like the price. Therefore, we are producing in Canada the front half of the chicken to meet Canadian demand, and we are trading with the Russians so that they have an opportunity to provide their people with low-cost dark meat. In parts of Asia, the balance and choices are different. That is where you see some genuine benefits from international trade.
In the chicken market, the U.S. is hitting 16 per cent to 17 per cent of production because that is how they balance out their market. In Canada, we are probably heading toward that as well.
It is important to understand that it is not merely having the lowest cost; we must do the best job of serving the consumer domestically and internationally.
Senator Whelan: My next question is for Mr. Core. I have been confused about the two-price system ever since it was first introduced in Canada. How can you export a product cheaper into the world market than you are selling it in your own domestic market? I understand that you are going to appeal the ruling, but why did you create that two-price system? That is what got you in trouble, is it not?
Mr. Core: Every country in dairy sells product in the world market cheaper than they sell it in their domestic market. It does not matter whether it is New Zealand, Europe, the United States, or Canada, that is the way it is done.
In the last agreement, there were two things that had an impact on us. First, with regard to the level of government export subsidies, there was an agreement on reduction -- 36 per cent and 21 per cent on value and volume. That was the first agreement in place.
The second agreement that created difficulty for us was that producer levies were defined as being an export subsidy.
Senator Whelan: If I may interrupt, is that not a change in the law, the world ruling?
Mr. Core: Yes, the last GATT agreement brought that forward.
Suddenly, the Canadian multi-price system was termed an export subsidy. Because of the agreement on reduction of export subsidies and the way in which our market had changed over the years, we would have been in a conflict. Therefore, we examined the GATT agreement, and what was allowed, we believed, was a two-price system, or multi-pricing scheme, where producers actually got paid the domestic and world price. This arrangement was compatible with the WTO agreement. Nothing defined the multiprice system as being an export subsidy because, in our view, the producers had the choice to produce for the world market at that low price or the domestic market through their quota system.
We believed that that was compatible with the agreement. We have made those arguments. The panel has made a ruling against us at this point, but we believe there are legal grounds for appeal to the WTO, and we will wait and see what happens as a result of this.
It is important to remember that if, in the worst-case scenario, this ruling stands, then it is my personal belief that much of what New Zealand and the United States do is also contrary to that ruling. It will impact on the way California and New Zealand market their milk into the world market. We will wait to see who are the winners and losers in this process.
Senator Whelan: Regarding the importation of products that contain rBST, you quote a doctor group who say there is no damage to humans. A report that has just been released this week from an American university -- I forget which one -- says there is damage to human health and that rBST should be banned.
We are going to bring the doctor group back here. We have no evidence that they did proper research or testing. The only real testing they are relying on is 90 days on 30 rats.
Do you have any opinion on this issue? This is a health issue and health issues supersede, if I understand the international law, anything else.
Mr. Core: We have clearly said from the beginning of this discussion on rBST that the issue does lie with the Bureau of Veterinary Drugs. It is the agency's decision. We have also said clearly that, because of the controversy surrounding rBST, and the whole controversy surrounding the licencing process, that the Auditor General should go in and determine whether their licensing process meets the standards and policies that Canadians want. We continue to say that.
Senator Whelan, you are suggesting that there is more information that needs to be looked at. We have asked all along whether Canada has confidence in the process. We do not think they do right now. We think the only way there will be any confidence is to put the Auditor General in there and determine whether Health Canada is meeting the expectations and requirements regarding licensing. That information needs to come to Health Canada and the Auditor General must review it.
Senator Whelan: I am sure you read our report in detail and saw what we said about the Auditor General. There should be someone who has the ability and staff to do that.
Mr Kolk, you spoke about consumer relations. Consumers are very interested in many of the production regulations in your industry. For example, there are laws concerning cleaning out a poultry barn. Many people do not realize that producers take three or four days to clean out, disinfect, and put new litter in the poultry barn, and then run the new 30,000 or 40,000 chicks in on the new litter. The United States of America, if I understand, run them in on manure, put some extra litter in and feed them antibiotics because they cannot afford to lose those three or four days of production. Consumers are really concerned about good, safe food. When I was the Minister of Agriculture -- and prime minister Trudeau told me that I was one of his most popular cabinet ministers -- good food and a farmer's right to make a decent living were priorities.
Do you subsidize your beef industry with your poultry industry?
Mr. Kolk: On the consumer end of things, we in Canada are bringing in on-farm food safety through Cardiff. We are actually having food safety and food quality programs on the farm. You are right, consumers wants to know that they have safe food. That is the bar that must be crossed before you put anything on the table. It does not matter what price unsafe food is. It must be safe food. That is our first responsibility as farmers.
We have an on-farm food safety program. I know it is coming, or is there, to different degrees in every one of the sectors on supply management. Dairy has an intense program. Hatching, because of their need for "biosecurity," and turkeys, as well have safety programs. There is an incredible program in place. We are developing it so we will be world leaders in systems and controls for food safety.
You cannot guarantee food safety but you can guarantee that our systems and the controls that are in place are the best in the world. On that issue, we will ensure that before we brag about a story, we will identify it, follow it, and follow it back.
You asked a question about whether we cross-subsudize. In farming, I have to cross-subsidize everything I do. That is the first point toward some stewardship. You must work with your farm operation to ensure that you leave the land for the future as good as you got it. And we must do subsidizing, whether it is cattle or grain. It is an opportunity to grow food for the Canadian consumer and for the world consumer. That is important to us.
Senator Whelan: My next question is for Mr. Stolp. I know the anniversary of the turkey board was this week. I have seen turkey and chicken producers go bankrupt. Can you tell the committee why you became president of that board and why you think it is a good one -- if you do think it is a good organization.
Mr. Stolp: First, let me say that I do think it is a good organization . As an individual, I enjoy and love farming. For me, farming was more than sending the birds to the end of the laneway and not worrying about them any more because they are someone else's responsibility. I also realize there is more to farming than getting dirt under your fingernails. There is the policy work and the regulations to deal with. I had an interest in that.
That is why I got involved and allowed myself to get to the point of becoming chair of this agency. I truly love this aspect of farming. Without this aspect of it, you will not have dirt under your fingernails for too long. You must take care of this end of it if you want to take care of that end of it. That is why I did it.
Senator Whelan: I had strong reservations about the Senate some years ago. I was offered an appointment in 1984 and I refused it. If you noticed the senators before the committee today, there were four from Alberta, one from Saskatchewan, one from Manitoba, and one from Prince Edward Island; but from the greatest agriculture province of all, there was only one. And I will retire in July.
I am suggesting, Mr. Kolk, that you get some farm representatives in the Senate. If you are tired of working all the time, you can make a great contribution.
In terms of communications, I once hosted a radio program that aired in Halifax, Peterborough, Ottawa, London, Windsor, North Bay, Sudbury and Winnipeg. The audience was about 80 per cent urban people, so 30 per cent of the people are neither French nor English, they are new Canadians. I never missed the opportunity to sell agriculture because we do have a good program. If I sounded tough on you, Mr. Doyle, it is because I am concerned about what we built. I want us to maintain high standards. People come to Canada to see our producers and farmers. When Mr. Gorbachev was here, he could not believe our people were so productive. When we were in Alberta, we visited a grain farm of about 6,500 acres with 250 cows and calves, and Mr. Gorbachev wanted to know where all the people who did the work were.
Fifty five per cent of our food is produced in Canada; it is produced further north than any other country in the world. We have learned that through programs that provide incentives our farmers learn to be productive.
In terms of productivity, I agree with what you said, Mr. Stolp. You are the caretakers of the land for the next generation. The better care we take of it, the better. We have a different system here than in the United States of America where the Secretary of Agriculture has total authority. He is not elected. The individual states are more or less extension services for the federal system. Their Constitution is not like ours, where agriculture is a joint responsibility.
Thank you for your presentation, I look forward to reading all of the material.
An article in the Manitoba Co-operator about the United States of America reported that Mr. Glickman, the U.S. Secretary of Agriculture, and his colleagues in both parties are talking about designing a comprehensive farm safety net for livestock, which was covered under previous farm programs. The article said, in short, that times are changing, that U.S. farm policy is clearly gravitating back to a model that dominated for most of the past century.
I would not be surprised if the World Trade Organization disappears. In my opinion, that organization will be the scene of some of the worst fights you have ever seen. I did not attend the European committees because I did not feel up to it. However, I have spoken to many Europeans, and we have relatives there. They do not intend to give up one iota. They will fight for several of the things that they have lost. When you say that supply management is not on the table, there could be things on there that could affect supply management.
The Chairman: We, in the Senate committee, have been studying trade, going back to the hearings on the Canadian Wheat Board in Western Canada. It has been a very useful time. Part of our objective is to make the government aware of the importance of agriculture, and I was very pleased to hear the consideration that your commodity groups in supply management have presented here for the grain growers, cattle producers, and hog producers. Only by working together can we emphasize that, while our governments may not be able to meet the subsidies of the European Union and the United States, we can put more emphasis on agriculture. I just relate to the meetings that were held in Regina with the grain producers who are going through a very difficult time.
This committee intends to bring some of the commodity groups here and to hear witnesses on the issue. However, I commend you today for the way you have presented a balance to the problems that face Canadian farmers.
Senator Whelan: I just want to point out that of the money put into the agriculture program by the government not one penny went to supply management operations. I remember dealing with those hog and beef producers. I said to the hog producers: "You are the most pig-headed group of people I have ever dealt with"; and to the beef producers, I said: "You are the most bull-headed people I have dealt with." This was in a crowded hall in Alberta. I received a standing ovation, but I did not get much support.
The committee adjourned.