Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 26 - Evidence

The Standing Senate Committee on Agriculture and Forestry met this day at 3:34 p.m. to examine international trade in agricultural and agri-food products, and short-term and long-term measures for the health of the agricultural and the agri-food industry in all regions of Canada.

Senator Leonard J. Gustafson (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, we are delighted today to have the Honourable Minister Pierre Pettigrew, the Minister for International Trade, with us, and given that agriculture has so many areas involved in trade, it is a very opportune time to have you, especially right after the trade conference that you were a part of.

Would you begin, Mr. Minister.

The Honourable Pierre Pettigrew, Minister for International Trade: This is my first visit to a Senate committee, so I am very pleased, and this is also the first parliamentary committee that I will have the opportunity to address since returning from Doha, Qatar, where we had a successful fourth ministerial meeting that launched a new round of negotiations. I welcome this opportunity to discuss it with members of the upper chamber.

I would like to inform you that I have asked two distinguished individuals to accompany me today: Mr. Claude Carrière from the Department of International Trade, and Madam Suzanne Vinet, from Agriculture and Agri-Food Canada. Mr. Carriere looks into the disputes and the individual negotiations that we have with countries, and if you wanted to discuss very technical issues, he is the person you should direct your questions to. Madam Vinet covers the international pending decisions from the agriculture point of view very well. We spent the week in Doha working as an integrated team.

I would like to focus my introductory remarks on the WTO and the successful launch of a growth and development agenda in Doha. Indeed, I am looking forward to hearing Senator Wiebe, who, I understand, will be providing us with a summary of the committee's findings during its tour of the United States. I am looking forward to having the benefit of these views; they are important to me.

I will focus my remarks today on the other elements of the WTO negotiations that Mr. Vanclief did not cover with you last week. I would like to discuss Canada-U.S. agricultural trade relations.

Doha was a victory for those who support greater international understanding, cooperation and freer trade among nations. There can be no doubt that the success of the meeting was due to the climate of cooperation that saw participating governments put the needs of the broader world community before their limited national interests. WTO members were clearly aware that in the wake of September 11, and in the midst of the current economic downturn, there was a need to send a message that the WTO and the multilateral trading system are important to our common well-being.

These factors combined to make November 14, 2001, an historic day. On that day, Canada and the other 141 members of the WTO agreed to launch a new round of global trade negotiations with a clear and overarching objective of ensuring that the interests and needs of less developed countries are addressed as we move forward on our path to further trade liberalization.

In our declaration, WTO ministers succeeded in addressing the key objectives and concerns of all members because all developing countries supported that declaration. This consensus represents a major achievement and a triumph for inclusiveness, transparency and cooperation.

[Translation]

We succeeded in closing the chapter on Seattle because the lessons of Seattle were taken to heart. We bridged the North/South and East/West divides that caused Seattle to fail.

The East/West divide centred around the difficult issue of agriculture. At Doha, for the first time ever, 142 WTO members committed themselves to negotiations with the objective of reducing, and "with a view to phasing out" export subsidies.

Members also committed themselves to substantial reductions in trade-distorting domestic support, and to substantial improvements in market access. Thus, there will be substantial reductions of domestic subsidies and our objective is the complete elimination of export subsidies.

This is very consistent with the Canadian objectives which Minister Vanclief and I announced in August 1999. It is a major step forward that these objectives have been accepted by all members.

Minister Vanclief and I are very proud that Canada was able to play a constructive and positive role in finding the basis for the eventual consensus on the agriculture text. Of course, despite the positive results in Qatar, the tough negotiations still lie ahead of us. Doha was just the launch of a round, not the conclusion of anything.

Doha brought the negotiations on agriculture under a broader agenda. This should allow all countries to find important areas of interest for them, and thus facilitate reaching a more significant result in agriculture.

The broader round means that our efforts in the agriculture negotiations have the potential to bear more fruit than they would have, in a stand-alone negotiation. This is very good news for Canadian farmers, for the agri-food sector in general, and for all of us, as food consumers.

On the North/South front, our success can be summarized in the three words used to describe our new round of WTO negotiations: Doha Development Agenda. The Doha Development Agenda will contribute to economic growth and the reduction of poverty in developing countries. It addresses developing country concerns about market access for agriculture and industrial products.

In addition to securing the "growth and development" agenda and the commitments to reduce agriculture subsidies we were seeking, I am pleased to report that Canada's other major objectives for Doha have all been met.

WTO ministers also committed to: negotiations on non-agricultural market access; firm and realistic time-lines for the services negotiations; negotiations to improve the disciplines on anti-dumping and subsidy/countervailing measures; and negotiations to improve the Dispute Settlement Understanding, on an expedited calendar, with the aim of having these negotiations completed by January 1, 2005.

In addition, members acknowledged the importance of transparency in the WTO's operations and the importance of coherence in international economic policy-making. We also reaffirmed our Singapore declaration on core labour standards and expressed support for the work of the International Labour Organization on the social dimension of globalization.

Our Declaration also includes a strong reaffirmation of the objective of sustainable development, together with appropriately-balanced negotiations and other work on a number of environmental issues. It also indicates our agreement to extend the moratorium on customs duties applied to electronic transmissions until the 5th ministerial conference.

And finally, our government proved once again its commitment to engagement by providing opportunities for Canadians to make their concerns known in the months preceding the ministerial meeting.

In Doha, for instance, diverse interests were represented among the delegation's advisors. Minister Vanclief and I personally debriefed business and NGOs in Doha and in Canada every day and received instantaneous feedback on our progress.

[English]

Looking ahead, it is clear that the success at Doha is just the beginning. As we go forward from this historic moment, discussions now under way in the agriculture negotiation need to be intensified and deepened so that we can thoroughly explore all issues before a draft framework is developed in the spring of 2003.

Other factors will influence the direction and progress of these negotiations. Obviously, how Europe deals with the common agricultural policy of reform and the accession of Eastern European countries will give a strong signal as to how great an outcome we can hope for.

Likewise, the U.S. Farm Bill currently being developed, will provide a strong indication of how much leadership we can count on from the United States on the reduction of subsidies.

I am encouraged by what I witnessed at Doha. The United States set the scene for success early by signalling that it was flexible on the issue of anti-dumping, which has been a sensitive issue for our American neighbours for quite some time.

The United States also moved on the issue of TRIPS and public health. American Trade Ambassador Robert Zoellick was active and constructive throughout the gathering, including at critical moments during the discussions that took place during the final night. This is exactly the kind of leadership the world trading system needs, and I hope that the Congress of the United States gives President Bush the trade precaution authority tomorrow to be able to provide that leadership that we need.

At Doha, we welcomed both China and Chinese Taipei into the WTO system. I do not need to emphasize how significant that is and how great it is to see these two countries joining the WTO, in particular, after the September 11 attack, when we saw terrorists attack the values of openness and pluralism in democratic societies. It is extraordinary to see the world-based system being embraced by more citizens of our planet. It is good news.

In Doha, rich, developed countries accomplished the unexpected. They compromised on long-held positions to ensure that underdeveloped countries would gain something from freer trade. The global community took an important step forward in building an international trading system where every country can benefit.

In the months and years ahead, we must all dedicate ourselves to fulfilling the promise of Doha by honouring the commitments made there. In that way, we can help promote the ideals of openness, understanding and cooperation.

[Translation]

Before turning to questions, let me touch briefly on other initiatives and priorities in terms of agricultural trade.

Canada and the U.S. are each other's largest trading partners. Our bilateral trade averages out to some $1.8 billion every day, of which agriculture accounts for about $350 million. The balance of trade in agricultural products has been in Canada's favour by over $3 billion annually.

That trade is for the most part dispute-free. There are irritants, of course, but we have the bilateral consultative mechanisms to bring concerns and differences forward for resolution before they become serious trade problems.

For agriculture, the Canada-U.S. Consultative Committee on Agriculture and the Provincial/State Advisory Group have had notable success. And of course Minister Vanclief and I meet regularly with our U.S. counterparts.

Management of Canada-U.S. trade policy has recently focused on: the 8th investigation of Canada's wheat practices - this time under section 301 of the U.S. Trade Act - scheduled for conclusion by January 22nd; restoration of our market access for P.E.I. potatoes; and the challenge in the WTO of our dairy marketing practices - to which I would like to return in a few minutes, as the WTO compliance committee published favourable findings for us the day before yesterday.

Building upon our free trade ties with the U.S. and Mexico, Canada is also positioning itself to take full advantage of the emerging hemispheric markets through our active leadership in the FTAA negotiations.

The FTAA holds the potential to create the world's largest free trade area - 800 million people and a combined GDP of nearly $17 trillion - and holds the promise of significant benefits for Canada's agriculture and agri-food industry.

The Canada-Costa-Rica Free Trade Agreement will give Canadian exporters preferential access to that market and a toe-hold in the region. Initially, over 90 per cent of Canada's $12 million in agri-food exports to Costa Rica will benefit from partial or total elimination of duties immediately upon implementation of the Agreement. These benefits will increase as further tariffs are eliminated and tariff rate quotas expanded.

I announced on November 21 the launch of free trade negotiations with El Salvador, Guatemala, Honduras and Nicaragua, which we call the C-4 for Central America. Such an agreement will increase the competitiveness of Canadian agri-food exports relative to those from the U.S., the EU and other countries.

[English]

I would now like to take the opportunity to update you on the softwood lumber issue and the continued work on the part of the Government of Canada. I do believe that our goal of a long-term solution is achievable. The United States is looking for reforms to enter a more open, transparent, market-driven provincial forest management system. We are looking for guaranteed secure market access in return.

The United States is engaged and committed to a long-term solution. Neither the U.S. nor Canada wants to fight this battle again in a few years. Thus, the President appointed as a Special Representative on Softwood Lumber former Montana Governor Mark Racicot, who has become Chairman of the Republican Party. The appointment demonstrates the President's seriousness in appointing a key player in Washington to coordinate its efforts on the softwood lumber issue. This is good news for Canada. We have the demonstration of a central player in Washington to help us move forward on this very difficult and complex file.

Governor Racicot has been meeting with key players in Canada, including the Premier of British Columbia, all the premiers of Atlantic Canada, ministers in B.C, Ontario, Alberta and Quebec, and industry representatives. He is telling them that any deal has to be transparent, verifiable and responsive to market forces. He is also saying there may need to be some kind of bi-national commission to deal with issues in the future.

I was recently in British Columbia to consult with stakeholders, and I have been consulting key stakeholders across the country on a regular basis. I am pleased to report that there is broad support for the approach that we have been taking.

I will be speaking to Governor Racicot in the next few days. We will share our assessment as to whether we are close to an agreement on the elements of an endurable long-term solution. He will be following up on some specific elements and provincial proposals over the next week or two.

Finally, Mr. Chairman, as you know, we received good news from the WTO on Monday. The WTO appellate body found that United States and New Zealand failed to prove that Canada's approach to commercial export milk is WTO inconsistent. We worked hard, in close cooperation with the provinces and industry, to put forward a strong case. For Canadian dairy producers, processors and exporters, it is a significant victory. It is particularly good news for thousands of workers who are dependent on our exports of dairy products.

The appellate body's reversal of an earlier WTO panel ruling means it is business as usual for Canadian dairy exports. I am pleased we can continue to share and promote, as my colleague the Honourable Lyle Vanclief likes to call them, the best dairy products in the world.

This WTO decision sustains a position that I, as Minister for International Trade, have been advancing since I assumed my responsibilities, namely, that an international rules-based trading system is good for Canada. It provides a vehicle to ensure that we can participate in world markets when others try to shut the doors on us.

We have a busy agenda ahead of us on the trade policy front, and improving access for Canada's agriculture and agri-food sector is a top priority for us. We as government are committed to a process of close consultations with industry and the provinces as we move forward on these negotiations, and we will look forward to your input into this process and, of course, keep you advised on our progress.

The Chairman: Thank you for that report. I must say to you that when it comes to getting the Europeans and the Americans off subsidies, I have some concern. This committee had the European people before us just two weeks ago. That certainly was not the indication that they gave us.

Let me quote from the New York Times, November 15; the day after your convention:

The Senate Agriculture Committee approved an $88 billion farm bill today that places no limits on subsidies to America's wealthiest farmers.

Further down it states:

The House passed at 10-year $171 billion farm bill last month that provides more generous subsidy payments to farmers and less money for conservation and food stamps.

Further down, the article reads:

In an open alliance, Senate Democrats and House Republicans from the farm belt have succeeded in blocking the Bush administration's effort to revamp farm policy.

Another article from the New York Times, November 28, states the following:

In his first remarks about the 10-year, $171 billion farm bill now stalled in the Senate, Mr. Bush tried to reassure Republicans from agriculture states that he would not abandon farm subsidies.

I must tell you that our farmers, especially in grain and oilseed, have seen difficult days. Our commodity prices are out of line with what they are receiving in the United States and what they are receiving because of the subsidies in the European common market.

I guess for a favourite expression, I am sort of from Missouri on this thing because I have heard it for a long time and I hope you can meet your objectives. I must say this is an important issue. What would your government do if we cannot meet these objectives by the year 2006 for the farmers? If we cannot meet those objectives, we are living in a difficult day as grain producers and oilseed producers.

Mr. Pettigrew: Your point is well taken and very well articulated. You are absolutely right that these negotiations will be difficult. That is what I said. I said Doha was an extraordinary success. The negotiations that we aim at having on a tight time schedule are going to require a great deal of skill, strength and energy on or part and that of our other WTO partners. Europeans will resist and Americans will resist. We know that, but this is exactly why we need the WTO more than ever.

We need the WTO because, at the multi-lateral table where we discuss many other sectors, if the Americans want to get some concessions on any particular sector, they will have to give up something. Canada, as well as many other countries, supports the elimination of export subsidies and the substantial reduction of domestic subsidies. These are the top priorities in this round of negotiations.

We are not alone in that. Canada has the support of many countries whose top priority is the total elimination of export subsidies and the substantial reduction of domestic subsidies.

Senator Tkachuk: I understand that there were no senators from this committee at Doha. Is that a deliberate policy, or an oversight?

Mr. Pettigrew: Neither. We had approached a number of senators. We had been in touch with the whips. I invited a number of senators, and it is regretful that we were not able to identify senators who could come. However, we have been in touch with the whips a number times. I have informed my people that we have to make absolutely sure that this does not happen again.

Senator Tkachuk: My understanding is that over the next number of years, you will be preparing yourself for the discussions at the next trade talks. I raise the same concern as the Chairman regarding the European Union. Although they agreed to include these negotiating outcomes in the WTO ministerial declaration, the European Union's Web site suggests that there is no commitment to negotiate the elimination of export subsidies. It seems to be a contradiction in their position, and I ask you to comment on that.

Mr. Pettigrew: On what angle, exactly?

Senator Tkachuk: The European Union's Web site said there is no commitment to negotiate the elimination of export subsidies.

Mr. Pettigrew:I would like to be more specific on the consultation with the whips. I meant to say that my department should have worked better with the whips of the Senate to ensure that this result does not get reproduced. That is the way I should have expressed myself.

Obviously, the European Union will reinterpret the text in certain ways. There is an election in France, and they are trying to say they are not committed to that. If you read the text, it is a win-win situation for us. There is a commitment with a view to phasing out export subsidies.

Now, words were added. Without prejudging the conclusion of negotiations, can you tell me one negotiation that can prejudge the conclusion of a negotiation? We cannot prejudge how far we can go. It is clear that all 142 members accept to do it with a view to phasing out all export subsidies. That is the commitment they have made. They might try to water it down, but their commitment is there, and many of us will remind them of their commitment. It was not easy to get; they demanded other things. They wanted negotiations on the environment with our trade obligations at the multi-lateral environmental agencies. They got that. They got a number of things they wanted. When they do not deliver, they will realize there are other things they want which we will make it difficult for them to get.

Senator Tkachuk: Will our priorities be grains and oilseeds as the first items from which to remove the export subsidies?

Mr. Pettigrew: We want to eliminate export subsidies on all agricultural goods.

Senator Tkachuk: I understand that. However, you said negotiation.

Mr. Pettigrew: If you are asking me which product will be first on the list, I will trust my colleague, Mr. Vanclief, to advise me very well. He will conduct many of those negotiations. I am not going to volunteer which product should go down first. Our objective in the next three years is to eliminate all export subsidies, with a timetable acceptable to all the membership.

Senator Tkachuk: I am sure you realize that we are the ones in the West operating in the free-market system. We are the ones exposed to the vagaries of the marketplace. We have to deal with the fact that Europeans do subsidize their products, and the Americans are now taking them on. Our government seems to be moving along but seems to be not quite sure how to handle this situation, whether they should make a real commitment to a strong subsidy program in the Prairies, to grow so much wheat that it will be falling all over the world. I know we could grow a great deal of wheat and make it more difficult for them, or, over the next five years, lose our most precious resource, which is our family farm, the people who run it, and the expertise that we built over the last hundred and some years in the West. It is a real concern of ours.

I know you cannot tell us what you are going to do in the next five years, but I want you to at least make a pledge to visit the West, to listen to our concerns, to know how important this is to us. I am not too worried about the dairy industry, but I am worried about the grain and oilseed industries.

Mr. Pettigrew: We have a magnificent country with varied interests. I was pleased with our win on the dairy industry on Monday. I have travelled many times to British Columbia to study the questions concerning softwood lumber. I was there ten days ago. I take great pleasure in travelling to the West. On my first trip to the Prairie provinces, I was 15 years old. That was the first time I had the benefit of visiting Manitoba, Saskatchewan and Alberta. I have very fond memories of that. I never lose an opportunity to go to the West, and I will be looking forward to discussions with the agriculture farmers and farming industry people. You can count on my total support, and the Minister of Agriculture confirmed to you last week, when he came here, that we work as a close team.

[Translation]

Senator Day: Honourable Minister, I would like to congratulate you for the two successes, namely in Doha, Qatar, but also for your success this week concerning the WTO decision.

If you allow me, I'm going to read the mandate of our committee for you:

Examine international trade in agricultural and agri-food products.

The senators have an interest for this issue and even the duty to be aware of the discussion which took place in Doha. No senator took part in this meeting. Maybe next time you could communicate with the chairman or the deputy chairman of the Senate Committee on Agriculture and Forestry because we were very sad not to be there.

[English]

Senator Day: On page five, you indicate there is $1.8 billion every day of bilateral trade between Canada and the United States, and $350 million is agriculture product.

Mr. Pettigrew: Yes.

Senator Day: How much of that $1.8 billion would be forestry product?

Mr. Pettigrew: It is $11 billion for the year. Softwood lumber is $11 billion per year.

Senator Day: I am trying to compare it to the $350 million a day.

[Translation]

The $350 million a day in agriculture represent both our exports to the U.S. and our imports from the U.S. It is the bilateral trade. The $11 billion a year are only for softwood exports to the U.S.

Senator Day: Are the discussions you are having now with the United States concerning softwood related to the subsidies and antidumping issues?

Mr. Pettigrew: Yes, Senator Day.

Senator Day: Is that going to solve everything?

Mr. Pettigrew: Being from Atlantic Canada, I can understand your concern since you were exempted from countervailing duties but not from dumping.

At the present time, the work is mainly being done on the issues of government programs. The U.S. allegations and forest management are mainly provincial matters. We hope to find a sustainable long-term solution for everything, which would also include ways to work better with the Americans to ensure access to the U.S. market without any tariff, countervailing duties or dumping.

Senator Day: Do the current discussions include both?

Mr. Pettigrew: At the present time, they are focused on the countervailing duties issues, thus mainly on the measures linked to provincial programs. Companies practices will possibly lead to a consensus.

[English]

Senator Wiebe: I am going to ask you a tough question; it is a question that I ask just as much as a farmer as a senator. You may not be able to answer it, and possibly your assistant, Ms Vinet, will be able to answer it on your behalf.

The governments here in Canada, Europe and the U.S. put a tremendous amount of emphasis on subsidies, as it is the subsidies in the agricultural industry that are creating the distortions in the normal market flow of supply and demand.

We have left the farmer with the impression that if we are successful in eliminating the subsidies, the woes of the agricultural producer will be over. The forces of supply and demand will take over.

Farmers in Canada are some of the best producers in the world. We have developed that technology over the years, but we have also exported that technology to the U.S., Europe and other countries. We are good at what we do and so are the farmers over there.

Here in Canada, over the last six years, our farmers have been paid the lowest of subsidies in the three areas of Europe, Canada and the U.S. As an example, six years ago Canadian farmers seeded 20.1 million acres of land into spring wheat. One would think that the effect of low subsidies would have them change to other products. Yet in the crop year 1999-2000, farmers in Canada seeded 18.6 million acres into spring wheat. That is a small decline.

I wonder what the trade negotiators in all countries think. If we eliminate the subsidies, why would the American and European farmer cut back more of their wheat production than what our Canadian farmers have cut back?

The problem is that farmers in Europe and in the U.S. will continue to seed wheat because they do not know what else to do with their land. That is part of our problem here in Canada. What else do we do with the land we have? We know how to grow wheat and we are good at it. There has been some diversification into other crops. However, as soon as that movement is made, for example into chickpeas, other farmers find out about it and they move into chickpeas and another surplus has been created. Maybe our government should be looking at a land use policy rather than trying to resolve our problems by eliminating subsidies.

I think the U.S. recognizes that there will not be that great a movement once subsidies are done away with, and for that reason they have come out with a 10-year program to stabilize their farmers. Europeans, according to the press releases we hear, do not seem to be moving quickly towards that elimination.

From a trade perspective, our government is moving in the right direction by eliminating those subsidies. However, eliminating subsidies will not improve the condition of the farmer in our country, in the U.S., or in the European Common Market unless we find something else to do with the land that we now have under cultivation in all those countries.

Mr. Pettigrew: The United States and the European Union subsidies are influencing production decisions. The programs we have do not influence production decisions, and that is a big difference. If we want the Europeans and the United States to stop distorting production decisions, that is the best way we can do it. Right now the United States and the European Union are within their WTO obligations. That is why we have these negotiations, to make it out of the WTO obligations, but we need to bring their levels down substantially.

Senator Wiebe: That answer would be exactly the same answer we got from the Department of Agriculture in Washington when we were there. They said they do not provide producing stimulant subsidies to their farmers. I am sure that was the same answer that we got from the representatives from the European Common Market.

If we are not providing stimulus for agriculture farmers, and they are not making money by growing wheat, then why are they still seeding it? If the stimulation is removed from the farmers in Europe, what then will they move into? What will they do with their land if their stimulation is not there to grow wheat? Are they going to leave it fallow? Are they going to seed some other crop where there is no subsidy? That is a tough question, and one that we, as legislators, will have to address because I believe that we are fooling ourselves if we honestly believe the farmer has got a magic button there, that once the subsidies are removed he will no longer seed wheat and will seed something else in its place. If that were the case, they would have done that already.

I am not asking this question to be critical. I am asking this question to try to find the answer, and if the answer is not there, then maybe to generate the seed that our department officials can start cultivating to try to look at the answer.

Mr. Pettigrew: I do not interpret your questions as being critical of our launching negotiations to get the elimination of export subsidies. You are saying that is not enough, and what else are we doing. I am the Minister for International Trade and not the Minister for Agriculture, so you will understand that my responsibilities are to obtain and negotiate down the export subsidies and the domestic subsidies. Negotiations have to deal with this. The Uruguay round was not enough. The commitments we made in the Uruguay Round Agreements did not allow us to obtain what we needed in terms of subsidies. We need to make them use non-distorting subsidies and better define the rules.

They know that they distort production. When 66 per cent of farmers' income in Europe, and 46 per cent of their income in the United States is subsidized, it is hard to demonstrate that they are not distorting production. We subsidize our farmers at less than 22 or 23 per cent. That is a big difference. In my view, that explains why we have to be there. That is why Doha is so important. We have a broader agenda in which we have more ambitious objectives concerning subsidies.

The Chairman: Mr. Minister, it appears to me, living right on the U.S. boundary, that the government of the U.S. has decided they have a responsibility to feed the world. With that responsibility in mind, they have decided that it is more politically acceptable to subsidize their farmers and sell the grain at a low and reduced price to Third World countries.

I believe we are in a whole new global situation and that our government really has not come to grips with fact. I think the Europeans and the Americans understand it. I have confronted them as to whether they are moving on that issue, and they deny it. I think the evidence is there. They are supplying cheap grain.

The numbers given to us are that they are subsidizing about $3 on a bushel of grain. If you go across the border where we live, they are getting Can. $6 for durum wheat today in the U.S., and we are getting $3 dollars. If we get a payment, we will be fortunate to get Can. $4. They are getting $2 to $3 more on durum wheat than we are.

I do not see how our government can expect our farmers to exist without accepting the global responsibility of where we are today. This is happening in many fields, but it has a serious impact on grain and oilseeds.

Mr. Pettigrew: That is why it is such an important priority for us to get some order there. The United States is clearly abusing the food aid concept. They use it for surplus disposal. They do it for all kinds of reasons. That is why we fought hard at Doha. The hard work is ahead in the negotiations that are looming on the horizon. We do not have deep pockets like the Americans. We cannot match these subsidies at $6 per bushel. That is why we were so pleased that Doha launched around. It gives us an opportunity with our allies and with the other countries. Other exporters will have a real kick at the can this time with the timetable set for January 1, 2005. I do believe that, certainly from an international trade point of view, that is the best thing I can do.

The Chairman: I think it important that this committee makes you aware that our farmers are hurting to such an extent that if they only meet their input costs, they are pleased. This cannot go on.

Senator Sparrow: Have you any advice for our farmers on how they are to survive while we wait for the action to take place?

Mr. Pettigrew: I am sure Mr. Vanclief has been available to discuss this issue with you. I do not know how many times he has been to the provinces and cabinet committees where he has obtained further support, help and assistance. He has given $900 million here and $400 million there. We have to be realistic. Do not tell me we are just asking them to wait for three years while we are making efforts on the negotiating front. Our government has been active and supportive to the extent of our means. We do not have the deep pockets of the Europeans and the Americans.

The advice I am giving the farmers is to continue to inform us of their needs. We have been responsive. We have produced new programs and more money than we thought we could actually provide, but we are also telling them it is important to support us in our trade negotiations. We will not be able to match the level of subsidies of the Europeans and cover 66 per cent of the income of the farmers.

Senator Sparrow: Do we have a surplus of cereal grains in the world compared to previous years? Senator Wiebe talked about the subsidies and increased production. However, the production has not changed very much in the last number of years. Even if the subsidies come back or if these subsidies are reduced, that does not mean our wheat production or the wheat production in the U.S. or the European community will change very much. The only change is that the dollars coming into the agricultural community will be greater than they are now because we will be able to demand a higher price for our products. In the interval, we are in the position of destroying the agricultural industry because of the trade distortions that are taking place.

My question was about the surplus. We do not have a world supply that has been any greater this year than in previous years. That belies any argument that we have that the subsidies will produce more wheat, because we are producing as much as we can.

Ms Suzanne Vinet, Chief Agriculture Negotiator, International Trade Policy Directorate, Agriculture and Agri-Food Canada: There is quite a bit of literature that has proven that depending on how you subsidize a farmer, it will entice a farmer to produce more wheat if he gets more money whether he has a successful crop or not, rather than producing a commodity for which he is not going to be supported. The kind of support that the EU is providing and the kind of support in some areas that the U.S. is providing clearly determines what a producer is going to produce. In some cases the producers that have a comparative advantage cannot compete fairly in the international market because some of the other countries' subsidies will promote the production of certain commodities for which they do not have that comparative advantage.

The Canadian wheat producers out west are competing against the U.S. treasury, where if the incentives for wheat production in Europe were not the way they are, there would be a fairer competition in the market.

It is fair to say that the type of subsidy that the government provides will influence what kind of production the farmer gets into, and that does create a situation where it makes an unfair competition for producers in other countries.

Senator Sparrow: The minister stated that the subsidies that are being paid now are an incentive to farmers in the United States to grow as much wheat as they normally grow. That is the statement.

Mr. Pettigrew: I said it distorts production.

Senator Sparrow: Not meaning distorting it downward. Production is up.

Mr. Pettigrew: I said it was distorting it.

Senator Sparrow: Meaning either maintaining what they have or increasing it.

Mr. Pettigrew: They could be doing other things.

Senator Sparrow: They cannot do other things if they are getting the subsidy, and they are selling what they are able to sell, as we are in Canada. In Canada we do not get the subsidy to make it a paying proposition. When we drop from 20 million acres to 18.5 million acres of wheat because of the production capabilities, the land we have and the other competitive items from the agricultural industry, such as oilseeds, where the cycle goes up and down we are faced with that. The statistics show that even if the subsidies are taken off it will not affect the amount of production that is taking place. If we do away with our agricultural community and the farmers when there is a still a need for the product, we are not fulfilling our obligation to the people who presently buy the wheat. The durum wheat is another issue, but it is not a big product in comparison to the Canadian hard wheat.

Mr. Pettigrew: What are you suggesting we do?

Senator Sparrow: I am saying we have a decision to make as government. The decision, you said, is made that all the money that is available has come to the agriculture industry. The Minister of Agriculture indicated that there is no more money available for the agriculture industry. We have, therefore, a decision to make. We get out of the business of farming, as it relates to cereal and grains.

Mr. Pettigrew: That is your advice to the farmers?

Senator Sparrow: I am asking you if that is your advice to the farmers.

Mr. Pettigrew: No, it is not.

Senator Sparrow: What do they do in the interval, while we are waiting for the subsidies to take place in 2003-04? They will not disappear overnight.

Mr. Pettigrew: We will continue to help them sell their goods abroad. We have a good, aggressive international marketing strategy. We have 530 trade commissioners around the world. We will help them as much as we can, and we will continue to be responsive with programs. Minister Vanclief has come to us time and again. I do believe I have a more optimistic viewpoint than you do. You are saying, "Why don't give up farming in Canada, because even if you are successful in negotiating down subsidies, that will not be good enough?"

Senator Sparrow: Indeed, because we will not have any farmers left by that time. That is the problem.

Mr. Pettigrew: If you do not mind, I will still try to work hard at eliminating them just in case there is some benefit.

The Chairman: There is an example right now of what could happen, and that is in the pulse crops. We as farmers have been trying to diversify and get out of wheat and into other crops such as the pulse crops. However, the Americans have found they can grow pulse crops and they are putting a subsidy on them. That will knock us out as it knocked our canola prices out. Last year at this time, we were getting $5 a bushel, and the Americans were getting $7.50 a bushel. If they do that in pulse crops, then the advantage of diversifying will be taken away from them. The indications I am getting from farmers down there is that it will happen.

Mr. Pettigrew: The U.S. Farm Bill that you are quoting is not final yet. However, we have concerns, and Mr. Vanclief has spoken with the Agriculture Secretary Ann Veneman, and we are following that bill closely.

Senator Hubley: I was pleased to see that Prince Edward Island potatoes were noted, and I wish to thank you for the work that both you and Minister Vanclief did in resolving that issue.

Do you feel that an expedient dispute resolution process is needed to resolve agricultural trade disputes, given the perishable nature of some products and the economic importance they have to certain regions? Is there a method to follow in cases when regions are faced with an economic crisis if the dispute is not resolved because of the very nature of the commodity that they are producing?

Mr. Pettigrew: I am not the agriculture minister, and you are getting into programs. I do not know all the agricultural programs. I do not want to risk creating difficulty for Mr. Vanclief or the government.

Ms Vinet: Provincial ministers of agriculture have raised the same issue in the aftermath of the potato problem that we had; the Prince Edward Island potatoes going to the United States.

Because of the recommendation made by provincial agricultural ministers, and because we have dealt with it in the consultative committee between Canada and the U.S., officials are evaluating whether there is a requirement for further systems to deal with perishable products. We have procedures in place to resolve issues. We are evaluating a number of avenues to see how we could be more responsive to issues.

Senator Tunney: The ambassador from the European Union was here a few weeks ago. I found her to be very well informed. I challenged her on some of the subsidies that they are paying. I related to her that not very many years ago, a French dairy farmer's total income represented 75 per cent of a federal subsidy. That is gone now. It is gone because the government of France found it could not sustain that kind of subsidy. In a very brief chat with her after we adjourned, she came to me and said, "I think we have some good news for you. The EU cannot continue the subsidies at the levels they are paying now." I believe we are going to see the end of the subsidies.

However, back in August, members of this committee spent a week in Washington. Because of my dairy background, I was asked to attend a series of meetings with the American dairy sector. I met with various people from the Dairy Export Council, the International Dairy Food Association and the National Milk Producers Federation, and with four congressmen from Michigan, Minnesota, Minnesota and Missouri, and Senator Patrick Leahy from Vermont. His wife is a nurse from the Province of Quebec.

Mr. Pettigrew: That demonstrates clear, good judgment.

Senator Tunney: The federal government and other government agencies are and always will be opposed to our marketing system, our marketing boards and our supply management. During meetings with the farmer organizations and with farmers, we heard that they would like the kind of a system that we have in Canada. Without exception the Congressmen told me that they are losing dairy farmers to bankruptcy, and they said they wanted to know how we have managed to keep our farmers, especially since all Canadian dairy products sell to the consumer for less money in Canada than it does in the U.S. The perception is that supply management increases costs or pushes costs up. They allege that we short the market for the sake of increased prices. Dairy farmers in Canada do not want increased prices; they want a larger market.

I had a very interesting encounter down there.

Mr. Pettigrew: That was a nice intervention. I appreciate it a great deal. My uncles are dairy producers. My branch of the family got into the grocery business two generations ago, but we are dairy farmers, so I know it very well. We just run things differently. It does not increase costs to consumers. Anyone who goes to the United States will know that cheese costs more in the United States than it does in Canada. We run things differently. We have much lower distribution costs. We organize ourselves in a way that is far more efficient. There is less money taken by the distributor, and it ends up making a big difference. You are right that many people envy our system.

Senator Tkachuk: Did you get to inherit your quota? They would like to be dairy producers in the Prairies too.

Senator Tunney: The dairy decision yesterday was the best day in my life that I can recall.

Senator Chalifoux: Our Canadian Wheat Board is under the ninth investigation since 1990. What are you doing other than visiting the U.S. legislators, government bureaucrats, and the staff in Winnipeg? Are there any other mechanisms you are using to educate the United States about our Canadian Wheat Board?

It has been suggested that the North Dakota Wheat Commission wants a tariff of U.S. $50 per tonne imposed on Canadian durum and spring wheat sold in the United States when durum shipments exceed 300,000 tonnes and other wheat exceeds 500,000 tonnes. Can you comment on the likelihood that tariffs will be imposed? If tariffs are likely to be imposed, is 30 per cent the likely level?

Mr. Pettigrew: This is the first time I heard about a 30 per cent tariff.

Mr. Claude Carrière, Director General, Trade Policy Bureau, Department of Foreign Affairs and International Trade: The current investigation under section 301 in the United States has been extended to January 22. At that time the USTR will decide whether or not the petition by the North Dakota Wheat Commission is founded. We find it interesting that they have extended a decision by several months. We do not know what the USTR decision will be. We know that they have no basis to take any adverse measure against Canada. Should they do so, we will vigorously defend our wheat practices, which follow international trade rules.

We have to wait and see what the results will be, but we expect they will not take measures to restrict our trade. We will not restrict our trade, and if they do take measures, we will contest them vigorously.

Senator Chalifoux: Would that be against NAFTA?

Mr. Carrière: It all depends on whether they do something and what action they take. We will exercise our rights under NAFTA or the WTO, whichever is the most convenient means to challenge their measures.

Senator Chalifoux: That is probably their election issue.

Mr. Pettigrew: Our trade agreement does not eliminate national trade laws. They can always use their national trade laws. At the Doha talks the Americans accepted to put on the table their trade laws, anti-dumping and counter-veiling duties. With further negotiations perhaps we will be able to achieve a common element that countries can agree on instead of some countries having to go to talks eight or nine times within a decade.

We try to educate them all of the time. It is not that they do not understand. Sometimes they only understand what they want to understand, and in Washington, that seems to be a very important part of the process. They have much the same attitude toward the softwood issue.

We will do everything we can to push our points, but sometimes the protection is pressured by producers, so they make themselves take another attempt at it, however frustrating it is. It is their prerogative.

Senator Chalifoux: It was interesting when we were in Washington that Senator Leahey was the only one who knew where Canada was. No one else seemed to know.

Mr. Pettigrew: He married a French-Canadian girl.

Senator Chalifoux: And he comes to Alberta to hunt ducks.

Mr. Pettigrew: He takes the girls in Quebec and the ducks in Alberta.

Senator Tkachuk: I am from Saskatchewan. I also like the ducks in Alberta and the girls of Quebec.

Senator Chalifoux: In the meantime, our Canadian Wheat Board is continually being penalized and chastised. I would like to know exactly what is going to happen after the ninth investigation. Do you have any idea?

Mr. Pettigrew: They can investigate as long as they want. There is nothing to stop them. We will continue to use it and export. That is unfortunately the way things work. It will cost them money to investigate. In the meantime, we will export. We do not have to stop exporting because they are investigating.

Senator Day: Mr. Minister, you indicate that from the Doha discussions an agreement has come to negotiate to improve the dispute settlement understanding, and I would encourage you on that. I know we are just starting the negotiations on this, but that is a way to handle these seven, eight and nine meetings. Many times it is another manner of a trade barrier. You knock it down with a negotiation, and Madam Vinet negotiates all these agreements, and it seems we are just creating work for lawyers and consultants.

Senator Hubley's point has to be stressed. When this happens to an area that is heavily dependent on trade with the United States it can have a devastating effect on the entire industry. That was the case when one corner of one potato field produced bad potatoes and the entire P.E.I. potato crop was refused entry to the U.S.

We have a similar issue. It is not related to agriculture but it is related to the farming of fish in New Brunswick and the dumping that the Chileans are doing. Are you able to comment on that particular situation?

Mr. Pettigrew: I was thoroughly briefed on it. I will let Mr. Carrière comment, as he is following the situation first hand.

Mr. Carrière: We have been meeting with the representative of the agriculture industry. We are aware of the concern in the United States.

You may be aware that there is already an anti-dumping measure in place in the United States against Chilean salmon. We have indicated to the industry that they may work with their main colleagues to file a request with the Department of Commerce to review the anti-dumping margins. If they file that request and provide information to us, we will support them in communications with the Department of Commerce. We are working with them and are waiting for them to provide some information so that we can assist them.

Senator Day: It is an industry that will not be able to survive much longer if we do not resolve these things quickly. That is the importance of a quick dispute resolution mechanism.

Mr. Pettigrew: The first issue you raised concerned the P.E.I. potato. President Bush was made aware of the P.E.I. potato every day he was at the Quebec summit. The Prime Minister decided President Bush would see the P.E.I. potato on every menu and at every meal.

Senator Day: Can you comment on where the government policy is going in relation to the special arrangements for developing nations, which will be negotiated at the next WTO round?

Mr. Pettigrew: We have realized that we are at 142 members and that negotiations are becoming more complex on a number of subjects, such as competition policy and investment. These are complex issues to grasp. Many developing countries have neither the resources nor the capacity to really understand and participate in those negotiations. That is what we need to do in terms of building the capabilities of countries in the developing world. That is why we call it a development round. We want to fully integrate them into the WTO system so they are able to take the full benefit of their membership and grow with the system. Growth leads to development. By definition, that is where trade is going.

Senator Day: Are you able to indicate how that might impact the special arrangements for developing nations and our existing infrastructure?

Mr. Pettigrew: They are not special arrangements in the usual sense. We are helping them to be better negotiators, well-trained negotiators, negotiating with an expertise that they have yet to acquire. There are no special conditions in agriculture for them. However, eliminating agricultural subsidies would bring in a more level playing field for the developing countries that cannot match these subsidies on world markets.

Senator Day: I was drawing a parallel between the reduced royalties for patented medicines for developing nations and the products they might be producing to send here to compete with the products that we are growing in this area.

Mr. Pettigrew: No. In farming and even in medicine, they could not produce for our market. The built-in flexibility we brought to them is simply to allow them to meet the challenges of the pandemics we have been talking about, not to compete in our markets.

Senator Wiebe: The presentation that we will make in regard to our findings in Washington is more than 10 minutes in length, which means that our report is considerably longer than that. The value to you would be in reading the report rather than having to listen to me talk for the next 10 minutes.

While I did not receive the answer to my concerns in regard to the effect that the elimination of subsidies will have, let me offer this to you and the people in your department. I know it will take a considerable amount of time for me to explain, and I would be more than willing to make time available to explain that to them if they are interested.

I wish you well in your objectives. I hope they will be reached by 2003. However, if commodity prices for grain do not rise, remember that you heard it on December 5 here in Ottawa at a Senate committee meeting.

Prior to that, I hope to have an opportunity to explain it. I think it is very much in order to congratulate you and your negotiators for your success in Doha. We urge you all the success in the world.

I have one closing question. You can send the answer to my office. We do have, as you said, a $3 billion surplus in agriculture trade. My feeling is that the majority of that is in raw materials, such as grain, livestock and so on. What percentage of that would be processed food and what is its value?

Mr. Pettigrew: Ms Vinet will send you the answer. She is whispering to me that there has been a substantial increase in our exports of consumer products and livestock. While you read her response and see these interesting developments, I will have the benefit of reading your report.

I want to thank you very much for your hospitality. I am sorry that I must leave at five o'clock, but I have to attend my own international trade committee.

The Chairman: Senator Sparrow will have the last word.

Senator Sparrow: Under NAFTA and the export of natural gas, the Prime Minister made the statement that it can reflect on the export and pricing of softwood lumber. Is there any way of using the natural gas exports due to the NAFTA agreement in negotiating softwood lumber or agricultural products?

Mr. Pettigrew: I am the Minister for International Trade who sits on a $90 billion surplus with the United States. I am not prone to linking issues and penalizing an industry for helping another one. I do believe that we have very good merit on the softwood lumber case, and we are making progress on it without linking it to the energy industry.

The Prime Minister has never linked them. The Prime Minister has said that he invites the Americans to be consistent. He has said, "You people like free trade in energy and you need free trade in energy because you have problems in the south. Well, we like free trade in softwood lumber. If we all like free trade, make sure we have it in everything." There is a difference between inviting people to be consistent and threatening them. The Prime Minister would not do that.

Senator Tkachuk: Mr. Minister, you speak with passion. It is hard to say that about a Liberal minister. In your former ministerial life, the way you handled the Quebec situation made people like me extremely happy.

Minister Pettigrew, the passion you took to that fight was recognized by many. Senator Sparrow, Senator Wiebe, Senator Gustafson and I are all from the Prairies, and we invite you to take some time to visit a few round tables in the Prairies. We would be happy to be of assistance to meet with the people who actually produce the food, grains and the oil seeds. They will speak from their heart, and I am sure it will translate to yours. That will make you a better negotiator. I wanted to extend that invitation and thank you.

Mr. Pettigrew: I thank you very much, and I will take you up on the invitation. I always enjoy visiting the West and the Prairies. I have always felt very welcome, so much so that one day at the Board of Trade of Calgary, they sang Happy Birthday to me at the end of my address. It is not a very Liberal crowd, but they sang it at the end of my presentation. I feel great in the Prairies.

The Chairman: I want to thank you. This has been a good exchange, and you are welcome any time.

The committee adjourned.