Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 25 - Evidence


OTTAWA, Thursday, November 26, 1998

The Standing Senate Committee on Agriculture and Forestry met this day at 9:07 a.m. to study the present state and future of agriculture in Canada, consideration of the effect of international subsidies on farm income.

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

[English]

The Chairman: Honourable senators, before we hear from our witnesses this morning, I want to deal with the budget for the Subcommittee on Boreal Forest.

Senator Spivak, do you want to speak to that, please.

Senator Spivak: I just have a brief word to say. Almost every expert the subcommittee has heard from has talked about Sweden and Finland and their progress on management. For that reason we thought it would be good to visit those countries, and so we are trying to piggyback onto the trade trip; in other words, after the trade trip we would just detour into those two countries. That is the rationale for the budget.

Having said that, Mr. Chairman, unless there are questions on this particular aspect, I am ready to move that the budget be approved.

The Chairman: Will you move the motion, please.

Senator Spivak: I so move.

The Chairman: Are we all in favour of that motion, honourable senators? Anybody opposed? Carried.

Honourable senators, turning now to the subject before us this morning, consideration of the effect of international subsidies on farm income, I want to welcome, from the Department of Agriculture and Agri-Food, Mr. Michael Gifford, Director General of the International Trade Policy Directorate, and Mr. Steve Verheul, Deputy Director, Canada-U.S. Trade Issues, Western Hemisphere Trade Policy Division of the International Trade Policy Directorate.

We also have before us, from the Department of Foreign Affairs and International Trade, Mr. Jean Saint-Jacques, Director of the Trade Remedies Division, and Mr. Garry Moore, Senior Trade Relations Advisor for the European Union Division.

In other words, senators, we have the experts before us on both trade and subsidies.

Gentlemen, we are very pleased to have you here this morning, because much of the debate that has taken place in this committee has had to do with trade practices abroad, both with the U.S. and with the European Common Market, and we are anxious to have your expertise on those matters. I understand you will make an opening statement and then we will go to questions.

Mr. Michael N. Gifford, Director General, International Trade Policy Directorate, Agriculture and Agri-Food Canada: Perhaps I can lead off and then my colleague from Foreign Affairs and International Trade, Mr. Saint-Jacques, can complement what I have said.

First, I would just point out that the agricultural trade relationship that we have with Europe is almost as complex as the one we have with the United States. The European Union is a major exporter. In fact, it is the second largest agricultural exporter in the world after the United States. It is still the world's largest importer of agricultural products; it is a major competitor for Canada for Third World markets; it is the second largest supplier to the Canadian market after the United States, and it is our second largest agricultural export market after the United States; so we have a very complex relationship with them.

We have had a number of trade issues with the Europeans over the years. Probably today our biggest problem with Europe is that their regulatory approval system for genetically enhanced products is so slow and has become so politicized that it is causing us real trading problems, in that we no longer have any access for our canola to Europe. Basically, the system in Europe has become so log-jammed that we are unable to get approval for our genetically enhanced canola.

Several other issues on access into Europe are also bubbling along. We wish to certainly improve our access for Canadian wines into Europe, and we are in the midst of a bilateral wine negotiation with them.

We have an outstanding WTO panel report on beef hormones -- that is, the European ban on imports of beef fed with growth-promoting hormones -- and this effectively precludes beef exports from both Canada and United States. We have a number of Canadian agricultural producers who are very concerned about European subsidy practices as they affect our Third World markets.

For example, oat producers in Canada are concerned about European export subsidies on European oats to the United States, which are basically going to the horse racing industry. Certainly, our alfalfa dehydrators in Canada are very concerned about the emergence of structural surpluses of dehydrated alfalfa in Europe, and the Europeans are now moving their product into the international market and adversely affecting prices, for example, in the Japanese market.

The long and the short of it is that we do have a number of problems that really stem from the type of agricultural policies that the European Union has followed over the years. When the original six members of the European Union formed their union back in the late 1950s, Europe was a net importer of virtually every agricultural product you could think of. Today, however, Europe is a net exporter of virtually every agricultural product you can think of, at least in temperate agricultural terms. The reason they have gone from net importer to net exporter is that they have had very high price supports, backed up by border protection, and when they generate surpluses those surpluses are essentially disposed of on the international market through export subsidies.

Over the years, since this system was introduced in the early 1960s, the Europeans themselves have begun to recognize that the Common Agricultural Policy that was essentially developed for the post-war period needs to be reformed; European memories of starvation and rationing during and after the Second World War has now been replaced by a situation in which, essentially, the type of agricultural policies they are following are causing major structural surpluses and major problems with their trading partners, and reform is essential.

The first significant reform was initiated by Mr. MacSharry in the middle of the Uruguay Round negotiations. Mr. MacSharry, the European Commissioner of Agriculture at the time, made the assessment that it was impossible for Europe to, in effect, conclude the Uruguay Round negotiations without making some substantial reforms in the European cereals regime. As a consequence, in 1992-1993 the Europeans, for the first time, moved away from this system of price supports to a system of partial compensation through direct income payments, and so the Europeans reduced their intervention price for wheat and compensated producers by direct income payments.

When Mr. Fischler, the current Commissioner of Agriculture, became Commissioner several years ago, during his first six months he was saying that the reforms initiated by Mr. MacSharry were sufficient and that there was no need to change the Common Agricultural Policy any further; but after a year or so he became the most ardent proponent of reform of the Common Agricultural Policy. He has put some very far-reaching proposals on the table, which the member states will be assessing and discussing, and hopefully some conclusion will be reached by the spring of this year.

In short, what Mr. Fischler is proposing to the 15 ministers of agriculture is that the process of reform initiated by Mr. MacSharry should be continued, but that they should continue to reduce their support prices for cereals, dairy and beef and to compensate producers by making direct income payments.

As far as we can make out, the cereal proposals certainly seem to enjoy a fair degree of support within Europe. France, for example, seems to be disposed very favourably to the cereal reform proposals, but some of the other proposals, particularly those relating to dairy and beef, have not met with the same kind of reception; in fact, there is a lot of criticism of the proposals, particularly by European farm leaders.

Mr. Fischler has cited two reasons for the need for further reform of the Common Agricultural Policy. First, if the European Union is to be expanded to include Eastern Europe -- and those negotiations are currently underway or are starting, then what you are doing is having countries such as Hungary and Poland, countries with massive agricultural potential -- potential massive agricultural sectors -- joining the European Union and therefore you simply cannot afford to continue the Common Agricultural Policy as it is currently structured. Basically, the price supports have to come down. If they simply add the Eastern European countries to the current 15, the problems that they have now are simply going to be compounded more and more.

That was the first reason Mr. Fischler cited for the need for further Common Agricultural Policy reform.

The second reason is the next round of WTO negotiations. Mr. Fischler has been saying, "Look, in the last round we went in on the defensive, and we remained on the defensive throughout the negotiations even though we are the world's second largest agricultural exporter. We have had to accept disciplines on our export subsidies. For the next round we need to have a more aggressive negotiating position, and basically the only way we can do that is if we continue to have further reforms of the Common Agricultural Policy."

The international community is moving towards further and further reductions in export subsidies; simply put, the Common Agricultural Policy, as it currently exists, cannot survive further reductions in export subsidies. Basically, Mr. Chairman, what you have is the Commission of the European Union, and in particular the Commissioner of Agriculture, Mr. Fischler, putting forward very detailed proposals on further CAP reform. Those proposals are expected to be discussed and to come to a head in the spring of 1999.

Mr. Fischler would like to see the reforms carried out before the WTO negotiations start in late 1999, but there are some member states, France for example, who are suggesting, "Why not wait to see what the WTO results are before we decide about the need for further CAP reform? Why do we have to do it in advance? Will we not end up paying twice?"

Those are some of the considerations that are percolating in Europe.

In conclusion, Mr. Chairman, with respect to the WTO, clearly, the European Union is one of the economic superpowers when it comes to agricultural trade. As I said, the U.S. is the world's largest exporter and second largest importer. The European Union is the largest importer and the second largest exporter of agricultural products. Therefore, where those two countries come out will very heavily influence the outcome of the next round of WTO negotiations.

It is fair to say that the Europeans know that the rest of the world will be very much be interested in improving access to the European market, which remains heavily, heavily protected. Certainly, most of the rest of the world will be pressing for the phase-out and prohibition of export subsidies.

On the domestic subsidy side, when the Europeans and the Americans were, in effect, doing their last-minute deals in the Uruguay Round, we had this "traffic light" approach as a central feature of reductions of domestic support. So-called subsidies that were not trade-distorting were "green" and not subject to reduction; subsidies that were trade-distorting were "amber" and were subject to reduction. The Europeans and the Americans, in the dying days of the Uruguay Round, cooked up a sort of hybrid of the two, the so called "blue box," and basically that was Mr. MacSharry, the Commissioner of Agriculture in Europe at the time, saying, "If I am going to accept reductions on export subsidies for the first time, and if I am going to convert my variable import levies into fixed tariffs, I have to be able to compensate my producers through direct income payments."

The way the Europeans chose to compensate, while less trade-distorting than the system they replaced, was not strictly "green"; the so-called "blue box" is what the Europeans have now in terms of their domestic subsidies.

In the next round of negotiations, Mr. Chairman, we expect that the three central features will continue to be further reductions in import barriers, further reductions in, and hopefully elimination of, export subsidies, and further reductions in trade distorting subsidies.

To conclude, Mr. Chairman, I would say that there used to be a big debate across the Atlantic about who was subsidizing whom the most; the problem was that in some countries most of the support was provided through government payments, direct income payments or deficiency payments, while in other countries most of the support was provided through what we call market price support, offer-to-purchase programs, high internal prices basically bolstered by import protection. So we were always comparing apples with oranges.

In the middle of the Uruguay Round, or just prior to the Uruguay Round, the OECD in Paris developed a technique for measuring both treasury support and support provided through the price mechanism; this is the so-called producer subsidy equivalent, which tries to measure the value to the producer of government support in agriculture. It is a rough and ready measure, and I do not think anybody would pretend that it is a perfect science, but it is the only measure we have. When you look at these measures, you will see that on the average, among the OECD countries, the level of support to agriculture is something in the order of 30 per cent; in the case of Europe, it is in the 40s, and in the case of the United States and Canada it is in the high teens. I will give you the figures later, Mr. Chairman, and I will be using 1997 figures to illustrate. It is fair to say that support in Europe in 1997 is roughly double that of agriculture in North America. The realty is that certain forms of support provided to European agriculture have encouraged massive overproduction.

A lot of the benefit of this support has been capitalized into the fixed assets, which is the land value; so if you compare the price of land in the Paris basin or in East Anglia in the U.K., you will see horrendously high land prices, anything up to $7,000, $8,000, $9,000 or $10,000 an acre. That reflects the fact that producers have bid up the value of the land, because over the post-war period agriculture in Europe has been supported extremely well.

Mr. Jean Saint-Jacques, Director, Trade Remedies Division (EAR), Department of Foreign Affairs and International Trade: Following up on what Mr. Gifford has said, as he pointed out, in the MTN a significant progress was achieved in agriculture as well as in the area of trade remedies, and of greater interest to this committee is the area of subsidies and countervailing measures, where for the first time we agreed on the definition of what is a subsidy, and we made significant improvements to the rules governing countervailing duty measures in the round. In the next negotiations we certainly intend to improve upon these measures.

We have both, if I can call them, offensive and defensive interests. Canadian industry is a major user of trade remedies, so we want to make sure that our producers have access to functional trade remedy laws. At the same time we want to make sure that our access to foreign markets is not impaired by egregious use of trade remedy laws and we want to improve the overall trade-based system of the World Trade Organization by looking at definitions of subsidies and trying to improve the general context.

In terms of preparing for the next negotiations, we are currently at the stage now of internal deliberations as to what we see as objectives and negotiating approaches. This will be followed by consultations with stakeholders and the provinces, and then we will hope to develop a consolidated negotiating strategy for the trade remedies.

Naturally, we will always be in contact with Agriculture and Agri-Food Canada to make sure that the crosswalks between the various types of agreements represent and reflect the interests of Canadian producers and exporters.

The Chairman: You mentioned the World Trade Organization; when will the meetings begin? What is the timing?

Mr. Gifford: There is a ministerial meeting of the WTO scheduled for November 30 to December 3, 1999, and right now it has already been agreed that negotiations will start on agriculture and services. The big question facing ministers next fall is to what extent there will be other issues on the table -- for example, industrial tariffs and the general rules governing subsidies and countervail on anti-dumping.

That is going to require ministerial decision, but the Uruguay Round was unique in that there was a built-in agreement, as part of the agreement on agriculture, that we would resume negotiations at the end of 1999. The ministerial meeting will be held in the U.S. and by the end of next year the ministers will give the negotiators a mandate to start the agricultural negotiations.

The Chairman: We in Canada have made almost an issue of being GATT correct, if you will; it would appear to me that we have tried to be too much the guardian of the rules, as opposed to what other countries have done. With respect to the $6.7 billion that the Americans put out, how did they do it? Were they GATT correct to your way of thinking? How do you explain that?

Mr. Gifford: As I was indicating, in the Uruguay Round the idea was to say that some support is non-trade-distorting, and that will be considered to be so-called "green" and non-countervailable. How much support you provide in the green box is a domestic political decision as to how much individual governments are prepared to give to their rural sectors, but the international community agreed that certain forms of farm support are trade-distorting and should be subject to reduction commitments. This support was not identified on a commodity-by-commodity basis; it was aggregated; so we have some general commitments to reduce the non-green support by 20 per cent over six years relative to the record high levels of the mid-1980s, and that is the problem.

The support levels were so high in the mid-1980s that even a 20 per cent reduction off that support does not provide, in effect, any reduction commitment in today's context, because even with the latest American subsidies all the major countries are still well within their reduction commitments.

For example, in the case of Canada, in very rough terms our support levels in the mid-1980s were in the order of $5 billion. We were supposed to reduce that down by 20 per cent to roughly $4 billion, but when you add up the federal and provincial support today for agriculture it is something in the order of $2 billion, and that really applies to both the Europeans and Americans as well.

Technically they are living within their WTO commitments, but, to repeat, Mr. Chairman, when it comes to "green" support -- subsidies that have been defined to be non-trade-distorting -- it is very hard to convince the people in Geneva, or, more important, governments back in capitals, that it is any of the international community's business what level of support they provide to their rural sector if the support is provided in non-trade-distorting terms.

If you are a producer in Saskatchewan you do not care whether it is pink, purple or green, all you know is that the guy across the line is getting five or six times more support from the U.S. government than you are from the Canadian government, and that is unfair. That is the dilemma that the governments are going to be facing when they start these domestic subsidy negotiations again at the end of next year.

The Chairman: That is just the point I want to make. I was down in the U.S. myself and talked to farmers after they got the payment. The State of North Dakota received something like $700 million. They really got what I would call an acreage payment, as I understood what the farmers I talked to told me. I said, "How did they arrive at this?" They told me that they have a long-term average on every farmer for 20 years. One farmer I talked to said that his average was 24 bushels on wheat and durum, and he got an acreage payment on that, with a formula.

Now, if I raise that here -- and I have -- they say, "That is not GATT; that is ad hoc." Why is it ad hoc for Canada and not ad hoc for the U.S.? That is my question. When you look at the numbers in the report today, in the paper, the Minister is talking about $400 million. If you divide that among half of the farmers in Canada, the ones that might be in trouble with pork and grain and so on, if you use, say, 100,000 farmers, then it would be $4,000 a piece. That is not going to go very far.

By comparison, and exactly as you say, the farmers in Saskatchewan and Manitoba and Alberta are going to compare their situation with what happens across the line, and it seems to me that we have done a better job of defending the Americans than we have of defending our own farmers.

Mr. Gifford: Mr. Chairman, I do not want to stray into domestic income policy, because that certainly is not my field and, as you know, Mr. Vanclief is going to cabinet on a farm income disaster program today. I would simply say that the design of the program, of course, is crucial. When governments provide emergency income assistance, do they do it across the board so that everybody receives assistance, irrespective of their individual financial position, or do they somehow target the assistance so that the most needy get it, and those who have less need receive less?

Quite frankly, Mr. Chairman, it seems to me, and I think to most observers, that the American farm income package, which was put together just prior to the election and rather hastily, with primarily political considerations, is nevertheless as well designed as it could be. That being said, the administration was pressing Congress to do something even worse, which was to start playing around with the loan rates, which would have been even worse from a Canadian perspective; however, Congress in the end decided to keep their major farm income program and sweeten it up.

Again, Mr. Chairman, the essential point is that neither the United States nor the European Union is in contravention of their reduction commitments in the WTO. The question of how much support you provide to your rural sector in non-trade-distorting terms, in "green" terms, is a domestic political decision and not a decision for Geneva.

Mr. Chairman: So in "green" terms Canada has a margin of about $2 billion.

Mr. Gifford: That is correct.

The Chairman: You raised the issue of genetics in canola, and the fact that the European Common Market is not receiving it because of what is happening in Canada on genetics. Canola has been a saviour for the farmers in the West, or for a lot of them.

The market has been amazingly strong even though we have had this downturn in other price areas of grain. Again, companies are moving to the genetic side of things. In fact, we have "Roundup" ready now. I have just done a study on that on my own farm, and I wonder if we are advancing in technology in these areas to our own demise, in terms of trade. I am talking about contracting acres, which you would understand, and what is going on in the agriculture industry in canola at this point in time.

Mr. Gifford: I think the problem right now is that there are major discrepancies in the pace of the regulatory approval process as between North America on the one hand and Europe on the other. All of these genetically enhanced products in North America are tested exhaustively before they are permitted to be released for reproduction in North America. The trouble is that in Europe they have been scarred so badly by the effects of BSE, that quite frankly the credibility of the scientists and the science has been very badly marred, to put it mildly. The whole regulatory approval process has become so politicized that, although the European Commission in theory has an approval process, in reality the member states are disregarding it or blocking it because of perceptions regarding social preferences as opposed to science. As a consequence of those things, over the last two crop years we have been unable to sell any canola to Europe.

Other things being equal, Europe has duty-free access for canola, but because it is a major producer itself usually, we are a residual supplier at the best of times. Even when there are no problems, how much we export in any one year really depends on the size of the European canola crop. That being said, we have at times exported as much as $450 million worth of canola. Luckily, our major markets for canola and canola oil are Japan, the United States and, increasingly, Asia. Because of the inability to get the varieties of canola approved in Europe that we are growing today, over 50 per cent of the Canadian canola crop is going to be grown with genetically enhanced products; this is becoming a problem.

A classic example is the issue that you raised, namely flaxseed. Scientists at the University of Saskatchewan developed a genetically enhanced variety of flaxseed. Virtually all of this crop is exported to Europe. Somebody realized that if we put the seed into the Canadian system, we do not have approval yet for Europe, and if we switch to genetically enhanced flaxseed, we will not have a place to market the crop, so as a consequence that process has been halted.

Clearly, this is just indicative of the problems we will be increasingly facing, because the scientists, instead of putting out five new varieties a year, are putting out 50, then 500, then 5,000. As I say, the approval process in Europe just does not seem to be capable yet of dealing with these advances.

Senator Hays: I guess I am concerned about knowing more about our objectives. I think I know what our objectives are, and using the Uruguay Round as a benchmark, and the four years' experience we have had with it, knowing where have we been and where are we going, I suppose the objective is pretty simple.

Governments on an international basis have decided that market forces are a wonderful way of promoting carefree government. Decisions are made by the market and you do not have to worry so much about them -- they are made by a functioning market, I guess I should say -- and that seemed to be the objective in the Uruguay Round negotiation. With the benefit of four years' experience, when we look back, that may have been the objective and it may have been the stated reason for doing what we did; but what, in fact, happened in the negotiation was that everybody looked after themselves and the Canadian experience in some sectors, cereals in particular, has been disappointing for us.

The Canadian Wheat Board numbers of a 10 to 15 per cent increase in wheat production in the European Union and a 10 per cent decline in Canada show that there was a distortion of the market signal for European wheat producers, in terms of the market signal that Canadian producers read, part of which was driven by the subsidies.

You say that what we achieved in the Uruguay Round was a less distorting structure or framework for international trade in agricultural commodities. You also said that you are not concerned about income policies. You should be because we live in a complex world, and the complexity theory is no more vividly evident anywhere better than it is in the case of this area of negotiations on agriculture.

I guess that we are seeing some movement towards this objective, but correct me if I am wrong. Different agricultural economies have experienced the Uruguay Round differently, such that we go into the next round a bit behind other economies such as the E.U. and the U.S., which have retained some flexibility. I am not sure whether we had it and did not use it, or did not have it and therefore could not use it.

How do we get a good result, how do we go into this, assuming that we still have the same objective? I think the results for us have led many to question the objective. We always did, but we question it with more justification now. Going into the next round, all of this means that if the objective is achieved, there will be a major restructuring of the way in which we produce agricultural commodities in virtually every place in the world.

It will benefit some; it will hurt others. At this point it has hurt us a lot, we think. Maybe you disagree, and if you do, you will explain why it does not. The big problem is, how do we, from the position we are in, do that with a green program? I suppose we could considerably lift the support that we give to agriculture and go into the round with a green program.

I assume that is in the process of happening as we speak. We can go in with a lot stronger agricultural support that could be subject to negotiation or whatever, but how do we go into this round and come out a winner?

I have gone on a bit here to try and explain where I am coming from. I feel profound disappointment in the result on the cereals. More access has been helpful, but we go into this round kind of as boy scouts, having done, for whatever reason, what we were supposed to do. We have an agricultural constituency out there. It is going to be pretty awful going into this negotiation. You already know that.

How do we proceed in order to get a good result in the next round?

Mr. Gifford: First of all, let me just clarify my comment when I said that I am not a domestic farm policy expert. I am certainly involved in the design of the current farm income disaster program, but as somebody who has been involved in agriculture trade policy for a number of years, I recognize fully that most of the agricultural trade problems we face in the world today can be directly attributed to the types of domestic agricultural policies developed countries generally have used.

While people should not oversell the results of the Uruguay Round, I am the first one to acknowledge that I do not think it is fair to undersell them. Agricultural trade since the GATT was formed back in 1947 has been in chaos, mainly because governments were never prepared to apply the same disciplines to the agricultural sector as they were to the industrial sector.

For example, in the mid-1950s industrial export subsidies were prohibited in the GATT, but they remained in agriculture. When countries joined the GATT, they grandfathered some sensitive programs, most of which were domestic agriculture policies, or certain aspects of their domestic agricultural policies. When we entered the Uruguay Round we had general rules that were supposed to be applicable to all in theory, but in reality eight countries had either exempted their agricultural sector entirely from GATT rules, like Switzerland when it joined the GATT, or in the case of the United States, they had a waiver from the GATT rules that said they could apply section 22 import quotas virtually at will if imports threatened to undermine the U.S. price support program.

Basically, you had a system of law that was observed more in the breach than anything else. The big development in the Uruguay Round was the recognition that if you want countries and governments to take the WTO seriously, those rules have to apply equally to all, and that is what happened. Today, there are no country-specific exceptions.

The Americans have lost section 22. If the Americans still had the section 22 import quota authority we would have import quotas on wheat today, I guarantee you. But the Uruguay Round result has prevented the United States from taking a lot of unilateral actions that it would otherwise have done, and similarly other major trading companies.

For the first time, the international community agreed to reduce export subsidies. It was not elimination, but at least it was a start. For the first time on domestic subsidies, governments were prepared to acknowledge that certain forms of agricultural support policies are more trade distorting than others. The idea of categorizing everything into green and non-green categories was meant to encourage governments, over time, if they are going to provide support to the rural sectors, to do it in a way that is less trade distorting than the old-fashioned program, such as open-ended commodity price support and offer-to-purchase programs. I think that succeeded. It did not succeed, for example, in the case of market access.

We managed to bind all terms or market access, and there was some reduction, but it is clear that people were not starting from a level playing field and, as a result, you still got tremendous differences between countries in the degree of market access.

The European Union today is a net exporter of agricultural products to Canada. Why? Because their terms of access to the Canadian food market is a lot better than our terms of access to the European market. Clearly, in the next round, we have the goals of levelling that playing field when it comes to market access and getting rid of export subsidies. Every consultation the government has had to date with the industry suggests that those goals carry a lot of common support.

We have not been getting a clear signal from the industry on how they want the government to deal with the whole question of domestic subsidies. There are countries that do not have treasuries as large as Canada; Argentina, Australia and New Zealand all have support levels significantly below where we are today.

In the Uruguay Round, those countries who give little or no financial support to their agriculture sectors were saying, "Look, this traffic light approach might work fine for the big countries that have big treasuries, but should not all support to agriculture be reduced?" Of course, the answer they got from the bigger countries was, "Look, domestic politics are such that while we might be prepared to accept disciplines on trade-distorting subsidies, it is none of the international community's business how much support we provided on the green." That was where the Uruguay Round ended. I guess the question you are asking is, once we have finished the consultations with the industry, what should be Canada's initial negotiating position be as we start the negotiations at the end of next year. I think we are already getting fairly clear signals on what people want done with export subsidies -- they want to get rid of them -- and while some differences between the commodity groups are market access, I think most people recognize that over time barriers are coming down. But as of yet I do not discern any uniform position on what we should be trying to do in the next round with respect to domestic subsidies.

We have a particular preoccupation because we are sitting right next door to the United States. If we design a farm support program that is not green, we run the very real risk that it will be countervailed, and that is what happened to hogs 10 years ago. We had a classic deficiency payment type program. All the benefits of that tripartite program were more than completely nullified by the U.S. countervailing action. Clearly, when it comes to developing a domestic support program in Canada, one of the preoccupations of the drafters has to be how to design the program so that it is non-countervailable, in terms of the U.S.

Again, there is the whole question of how much money, preferably in green as opposed to amber, a government is prepared to provide its rural sector for agricultural support, particularly for green support. At the end of the day, this is a domestic decision that is determined through the domestic political process. It is not a decision taken in Geneva.

Senator Hays: As you described some of the positives, and there are some, it occurred to me that it sounds good, but it does not feel good. Section 22 is gone, but the U.S. is a big enough economy that if it wants a quota on wheat it gets a quota on wheat. We did agree to that, and of course we have agreed to it on softwood lumber.

I am mixing up trilaterals with multilaterals here, I realize, but I think the experience would be the same on both counts. Anyway, just to put it in a little different way, we go to the table having done, for whatever reason, a lot of the things that we were supposed to do under the Uruguay Round agreement.

We could do a lot more now and we could have done a lot more during the four years by way of providing non-countervailable support on the input side, on the income support side. However, we did not do it, and negotiating is often something where there is a give and take at the heart of it.

We have less to give, in terms of what we have done over the last four years in the way of government support, than the other major negotiators. We are not alone in that. You mentioned that Australia and Argentina are in similar or worse positions than we are, but can a country like Canada go to the table and make progress without something to give?

Mr. Gifford: Canada agreed to an import quota on wheat at a period of time when the United States still had the section 22 import authority. That authority ceased as a result of the Uruguay Round, the Americans, notwithstanding an awful lot of political pressure, have so far lived up to their international obligations under both the WTO and NAFTA not to introduce the section 22 quotas. Basically, it has provided an effective field. Before the WTO results came in, we did not have an effective field.

The Americans had a waiver: they could basically slap on a section 22 at zero, if they wanted, and we could not do a thing about it under the old GATT rules. Under the WTO rules, they no longer have the authority to apply import quota under section 22 on WTO members.

Senator Hays: Use softwood lumber as an example on the same basis.

Mr. Gifford: If I am an expert on anything it is on agricultural trade, but in this country the Ministry of Agriculture is not responsible for forestry, so I am not competent to discuss softwood lumber. I would not even want to pretend to get involved in that mess.

Senator Hays: Just let me make a point. It seems that the U.S. has successfully negotiated, in an extracurricular way, a quota agreement in a commodity sector. There is no reason to think that because of the size of their economy and their marketing strength as a huge importer that they could not do the same on an agricultural commodity.

Mr. Gifford: Perhaps I will let Mr. Saint-Jacques speak to the softwood lumber issue, but let me try and answer the last question. When you go into the negotiation, surely you are better off if you have something to give. As you point out, however, a number of countries, such as Argentina, New Zealand, Brazil and Australia, provide relatively little support to their rural sectors; they provide research and extension, but that is about it. They do not have much left, if anything, in the way of price and income support programs any more.

When you are in a situation like that, you cannot negotiate by saying, "If you do this, we will do that." You negotiate by determining the appropriate rules that make common sense for all agricultural trading countries to follow. You do not have to have coins in your piggy bank in order to get into the game.

The Uruguay Round illustrates that if a medium-sized or small country has good ideas, they could get those ideas accepted by the larger trading companies, such as the European Union and the United States, provided they make sense, do not seem to be parochial, and appear to be durable and sensible.

It is erroneous, I think, with all due respect, to say that you cannot be an effective player in a negotiation unless you have something to give away. I think the example of the countries I have just noted demonstrate, I think conclusively, that they have been influential in the negotiations and they do not have the financial resources that some other countries have.

Senator Hays: I would prefer something to trade with as opposed to giving something away. As the final hours of negotiation, such as the Uruguay Round, tick off, a lot of things that lead up to those final hours are moved around. I think it is fair to say that we hear concerns -- and you are saying that this is not necessarily the case <#0107> that we are more vulnerable in terms of what we have left, such as supply management, our programs, or authority to push our trading partners in the direction we want them to go, given our common objective. We feel vulnerable. I guess perhaps in a report to Parliament we can bolster you and those who are negotiating on behalf of Canada by saying that we hear that moral authority, given what the objectives are, and so on, is a very good negotiating position.

You have played by the rules but have left yourself vulnerable in terms of things to trade with, as opposed to give away. Hopefully we will not give anything away. That is, I am sure, how you go into it, but in the end, when the crunch comes, my observation is that it really helps a lot to have things to trade with as opposed to give away, and we do not have a lot left to trade with. I guess I am telling you that I am not taking a lot of comfort from your answer. You might want to add something that will make me feel better.

Mr. Gifford: The smaller countries, who do not have the same financial resources as either the European Union or the United States, clearly are at somewhat of a disadvantage in these negotiations. That is one of the reasons, of course, why smaller or medium-sized countries do, in effect, try to develop alliances and that is one of the reasons, for example, why the Cairns Group was formed.

Virtually every major agricultural exporter outside of the United States and Europe are member of the Cairns Group. They recognize that individually you have less influence, but collectively you can have an impact. I think it is fair to say that the Cairns Group, particularly in the early stages of the negotiations in the last round, did have a major impact, but you are quite right, at the end of the negotiation it is almost inevitable that a deal will be struck between the two major players, the Europeans and the United States. I guess the lesson of the story is that if you want to influence the outcome of the negotiations, you have to do it early on, before the Americans and the Europeans have their act together and when they are still open to ideas. If you leave it to the end of the negotiations, you are going to have to take what is negotiated and you do not have much input. I guess that is the reason why the government has been saying to the industry stakeholders, "We have to have a unified strong Canadian position going into these negotiations at the start. We cannot afford to wait until the end of the negotiations to figure out what we want to do, for by that time it is simply going to be too late."

Senator Hays: What is going on with this Transatlantic Economic Partnership (TEP), the successor to the NTM. I thought we were part of the transatlantic economy. Why are we not a player, and what is going on there?

Mr. Saint-Jacques: We are engaged in discussions with the European Union to try to develop closer relations with them and to work out areas of mutual concern. For example, we are developing approaches to the new round to try and exchange views with them to see how we can foster a closer relationship with the Europeans, so we are definitely involved in that.

Senator Hays: We are trying to get into it, but we are not there.

Mr. Saint-Jacques: We have had a long-standing dialogue with the Europeans for quite some time.

Senator Hays: But in terms of this specific TEP, the successor to NTM, do you think we have an opportunity to be at the table there? My briefing notes indicate, and I think they are from you, that we are sort of on the sideline, that we are bilaterally negotiating with the EU, and are not part of the TEP.

Mr. Saint-Jacques: Do you mean that we should be at the EU-United States dialogue, as part of the TEP?

Senator Hays: Yes. Its name implies that we should be there, in terms of us being an Atlantic economy. We are also a Pacific economy.

Mr. Garry Moore, Senior Trade Relations Advisor, European Union Division (REU), Department of Foreign Affairs and International Trade: I think you have to back up just a little bit. It depends on how you look at it and who is following whom. In 1997, Canada and the EU struck a high-level action plan, which we are following very closely. The Americans were not moving at that time. Therefore, in the way we look at it, they are following us.

In terms of us joining them, I do not think that is in the cards at the moment. The Americans have in mind that this is an EU-U.S. show. It is more or less on a plateau in my view, but nevertheless they are looking at it. There are a number of senior executive initiatives between the EU and the U.S. We are also moving on a parallel path, but not on a trilateral basis. There are some advantages to working with the Europeans on a bilateral basis.

That is where it sits at the moment. Our started much sooner, and in many ways we have a number of agreements under it, and we are still pursuing new agreements each year. We are not being left out by any means; in fact, we are way ahead of the Americans.

Senator Hays: Maybe, but when the EU and the U.S. are sitting down, keeping in mind the size of their two economies, cutting trade deals, to the extent that the U.S. is able to make a better deal than we are, it leaves us vulnerable on that account. That is what prompts my question. Your answer is that we are talking on a bilateral EU-Canada basis. We started our talks earlier and we are comfortable with that.

It would be very helpful to us to be aggressive in getting involved in the EU-U.S. issue as well. There would be more transparency to us vis-à-vis what they are talking about, and less likelihood of us getting sideswiped.

The Chairman: One short supplementary out of the questions that Senator Hays posed, which were very good. You said, Mr. Gifford, that you wanted to bring the rest of the industry and agriculture more or less on the same basis. This is apples and oranges. As farmers -- and I do not know much about trade, but I know an awful lot about farming -- we do not set the price on grain. I will give you an example.

Today, hogs are worth literally 30 cents a pound, and less. I am told they are gassing piglets so that they do not have to feed them. The processors are making money like they have never made. It seems to me that you have not brought that into the equation. You have thrown us out in the Uruguay Round, and I want to tell you, there is nothing to give.

If General Motors tries to sell a car, they know in advance what the price of that car is. They set the price, and you either pay them what they want for that car or you do not buy the car. All of the motor companies do that.

As farmers, we do not do that. The next thing I know, I will be supporting marketing boards, if I am not careful. This is a very serious problem. If you go into another round, are you going to give more away?

It seems to me that the countries of the world have decided not to defend the farmers and that they are going to do away with subsidies. Surely we have learned the lesson that that is not working. What about the next round: Are we going to give more? There will be nothing left. Maybe we have to start looking into Maple Leaf and other processors, bring that into the equation, to determine where the profits are going, because they are not going to the farmers.

Now that is a major question, but one that I think had to be asked.

Mr. Gifford: I agree that there are features of the agricultural sector that are unique. This business of cyclical production and reaction to high prices encourages grey production, which encourages low prices and people get out of business. The ups and downs are something that the industrial sector does not have to cope with, at least not to the same extent.

All countries recognize that there are certain characteristics of agriculture that need to be dealt with, and that is why most countries do have farm income stabilization programs and, where necessary, disastrous assistance programs.

The point that is being made in today's discussions is that we have ongoing programs such as crop insurance and NISA but that, clearly, when you have a major downturn, almost simultaneously, such as we are having in grains and cattle and hogs today, even the regular programs might not be sufficient. If you accept that as a thesis, then the question becomes: How do you design an emergency program that in effect helps those who need help without giving money to those who are in a less disadvantageous position. That is a question of program design.

Acreage payments are easy to do administratively. The question becomes one of whether or not acreage payments are the best way of directing assistance to those who need it.

The Chairman: I happen to think they are. If income tax is used to get a three-year average, young farmers will be penalized, every one of them. They have to sell their product; they have no choice. They have bills to pay. Farmers who are well off can defer their income -- and they are doing it, I can tell you that.

The problem I have with the other approach is this: Let us take the example of a young farmer hailed out two years in a row. First of all, he has no average; he has not made anything. You are going to put him out of farming.

Senator Hays: If I could make this point, Mr. Chairman, on the experience we have had at looking at the Europeans. They are disguised commodity-specific payments. One of the things that countries like Canada should pursue in negotiations is identification of programs that are prohibited, in disguise.

Mr. Gifford: The European programs are not green, but they are not as bad as they used to be. They fit this definition of blue, which was something concocted between the Americans and the Europeans. I think everybody outside of Europe would be of the view that the blue programs are trade-distorted. The reason that European production and, more importantly, acreage are going up and that wheat acreage in Canada is going down is that those programs are distorting producer decisions in Europe.

Senator Stratton: I want to go back to the Uruguay Round. How long did that take? Was it seven years?

Mr. Gifford: From fall of 1987 to December of 1993.

Senator Stratton: The real resolution of it was the creation of the blue box, correct?

Mr. Gifford: No. At the end of the day that was part of a bilateral deal between the Americans and the Europeans, but by that time the broad elements of the deal were clear. There would be reduction commitments and export subsidies; the same rules would apply to all countries, that the variable import levies and the import quotas would be converted to tariffs; trade-distorting subsidies would be reduced; and green would not be subject to countervail. The last thing that got inserted was the blue box, which happened to cover the type of domestic program that the Europeans were beginning to introduce for their crops.

Senator Stratton: Your perception is that the blue box was kind of a deal made to make Uruguay work; so it took seven years.

I read in the media that the U.S. is not going to go to the table because the expectation is that the Europeans will extend this out over a long period of time again so that they can continue with their blue box. Is that true? And if so, is there something under way so that they develop a timetable or schedule by which this kind of long extension, the seven year negotiation, is substantially shortened?

Mr. Gifford: That is exactly the point that the ministers will have to address next fall at the WTO ministerial meeting. A lot of countries, including the United States, have said they are not prepared to do another seven- or eight-year negotiation. It needs to be a lot shorter than that. In the last couple of months, in Geneva, there seems to be an emerging consensus those parts of the negotiations that will be put on a fast track, agriculture and services for sure, and perhaps some others, will be more in terms of a three-year negotiation.

The issue in the United States for some groups, as far as I can make out -- for example the service sector -- is that they have said, "We are quite content to negotiate in Geneva on services. However, do not link us to a huge negotiation that has eight other issues, where the speed of negotiations is that of the slowest ship in the convoy; therefore, keep us in a sector negotiation." As an agriculturalist, the last thing you would want is to have agriculture negotiated by itself -- a recipe for the smallest possible result. If you were the minister of agriculture in Japan or Korea, you would have absolutely no incentive to do anything on agriculture because you have import-sensitive problems and you have no export interest.

There has to be a sufficient critical mass in order to allow agriculture to be negotiated. I think your concern is shared by a lot of people; nobody wants to see another seven-year negotiation.

Senator Stratton: In your Annex 1, "Producer Subsidy Equivalents for Canada, U.S. and EU, 1997," what you see is that the value that Canadians get in wheat, corn and barley, in particular, are substantially lower than the U.S. and the EU. On the other hand, in terms of milk, beef, pork, poultry, and eggs, we are substantially higher.

When the western farmer looks at this, he gets the perception, rightly or wrongly, that he was sacrificed in the Uruguay Round to protect the dairy and feather industry. Some of us are really concerned that that was true, because we had our marketing boards protected. As such, we are paying the price on the other side, in our wheat, corn, and grains.

In the next round of negotiations, I would expect that these marketing boards would be on the table. Am I correct?

Mr. Gifford: Domestic marketing systems remain a sovereign decision of countries. How you market your product is your business. It only becomes an international concern when you have the board measures or the export subsidies associated with that program. If we choose to market our wheat through a single-desk agency such as the Canadian Wheat Board, that is our business. If we want to have orderly marketing for dairy and poultry, that is our business. Therefore, it is not the system of marketing that is going to be in issue in Geneva. The question will be: What is your border protection and what are your export assistance programs.

Mr. Chairman, Canada is not unique in having some sectors that are more import-sensitive than others. The American sugar industry, peanut industry, and tobacco industry are just as import-sensitive as dairy and poultry in Canada. Virtually everything in Europe is import-sensitive, so I do not think we should portray ourselves as somehow being unique, as the only country that has import sensitivities.

What I would suggest, and agree very much with you, is that the level of protection provided to different commodities in different countries varies widely. If you are a producer in a country that has a low level of protection, a low level of support, you want to see the other guy's level of support and protection come down to somewhere closer to where you are. These figures simply illustrate that in recent years, in the case of Canada -- look at the middle table, the so-called "Unit PSE (Cdn $/tonne)" -- you will see that our support levels, which in the mid-1980s were higher than the United States for wheat, have now come down significantly whereas the Americans figures are almost five times higher. The Europeans continue to remain high. In other areas however, poultry, for example, the support levels in Canada and Europe are high but those in the U.S. are low. Hence, it varies by commodity and by country.

All countries will be getting representations from their respective producers that they want a more level playing field and that those big disparities, whether it is on support levels or whether it is on protection, should be reduced.

The dilemma, Mr. Chairman, is that while countries are usually prepared to negotiate the border protection, and recognize that that is a legitimate international concern, they are not so willing to give up their right to unilaterally determine how much money or how much support to provide to their agricultural sectors. If that support is given in a non-trade distorting way, for example in a green program, you are still, at the end of the day, going to have disparities in domestic support, depending on the domestic political process in each of those countries.

I cannot emphasize that enough, Mr. Chairman. This is a domestic political decision, and only if everybody in the world decides that they are prepared to reduce green subsidies are you truly going to get a more level playing field when it comes to domestic support. That is going to be very much an uphill battle.

Senator Stratton: Nevertheless, the United States has stated, to my understanding at any rate, that they are going to target the elimination of the marketing boards and the Canadian Wheat Board.

Mr. Gifford: I do not think I have heard an American official say that their objective is, quote, "to eliminate state trading." I have seen and heard a number of them say that as an objective they want to increase the international disciplines that apply to single-desk sellers and single-desk buyers. When it comes to dairy and poultry, what they want is improved access to the Canadian market. They do not care whether we have orderly marketing or not. What concerns them is the level of border protection we have, the level of the tariff. Hence, it is misleading to say that other countries are taking aim at our marketing systems. What they are taking aim at is either the level of import protection in the other countries or the level of export assistance provided in the other countries.

Senator Stratton: If I were a farmer, I would not gain a lot of confidence by what has been said so far this morning.

Senator Whelan: Mr. Gifford, were you at the Uruguay Round?

Mr. Gifford: Yes, senator.

Senator Whelan: What part did you play?

Mr. Gifford: I was the chief negotiator on agriculture.

Senator Whelan: You have probably heard me say this before: that no political party, no farm organization asked to have done to dairy products what you and Mr. Mazinkowski, who was the Minister of Agriculture at that time, did. Mel Clark, who is a chief negotiator, still challenges what was done there. He said that that was the beginning of getting rid of supply management. What year was the Uruguay Round?

Mr. Gifford: It concluded in December of 1993.

Senator Whelan: You did not get a waiver for our dairy products as did the Americans for their dairy products, as you already said.

Mr. Gifford: I said the Americans had a waiver under the old GATT, but the WTO eliminated that waiver.

Senator Whelan: We could have had the same thing, had we tried.

Mr. Gifford: Senator, you are talking tarification now. In the last two months of the negotiations, November and December 1993, the Canadian agri-food industry was very well represented in Geneva, in dairy, by the Chairman of the Dairy Farmers of Canada and by the Chair of the Executive-Director of the National Dairy Council. As well, every supply management agency, both staff and elected, were there in full force.

As to tarification, we were the last country to agree to tarify, after Japan had given up, after Korea had given up. I would suggest, though, that since the end of the Uruguay Round supply management has continued to evolve and prosper. Quota values are up, they are not down; the system is still functioning. More and more, though, they seem to be recognizing that the domestic market is a relatively mature market, with the exception of chicken, which is still growing, and more and more there is a growing interest in servicing the export market.

I do not think anyone can say, Mr. Chairman, that the supply management industry today is any less favourable than it was pre-Uruguay Round. I do not think the Uruguay Round has had affect on the supply management system, except in the general sense that they now seem to recognize that concentrating exclusively on the domestic market and treating the world market as simply a means of surplus disposal is something that perhaps they should re-examine. As I understand it, every one of supply management agencies is trying to develop an export policy.

Senator Whelan: Maybe they should follow the pork producers then, is that what you are suggesting, looking for export markets?

Mr. Gifford: I accept, Mr. Chairman, that the pork situation today in Europe and North America is in drastic straits. These are record low prices. It results from a combination of circumstances. One is the effective loss of the Russian market, once they devalued. Another factor is that Europe overproduced when hog cholera was a problem in the Netherlands. As a result that, all the other member states increased production. When Dutch production came back, prices went down. A third factor is the expansion of production of hogs throughout North America. If we superimpose that on a weakening demand in Asia, we have the recipe for very low prices.

On top of that, supplies have out-stripped plant capacity to process hogs, particularly in the United States. In the U.S., they produce so much that the physical plant capacity, even working two shifts a day, which most of the American plants do, in comparison to Canada where we work one shift, cannot handle the number of hogs being processed. Most of those American plants are double shifting. That is the reason that prices are falling through the floor.

Senator Whelan: I am sure we are all aware of that. What I am saying to you, Mr. Gifford -- I remember you very well. I remember your attitude towards marketing boards in supply management. I used to have to tell you, "Look, Mr. Gifford, if you want to work here, you work for me and do what I say, but do not give me that garbage or that economic nonsense that you are going to have an unregulated world and you are going to have a great trading system."

The unregulated world in the financial structure has affected agriculture, it has affected everything, and it pretty near destroyed our people.

I have a neighbour who is a hog producer with 1,200 sows. He has two sons working with him, a total of nine people working with him. He is losing $90,000 a month now. This is what he was told, mind you, by the economists and by everybody -- it is suggested in one of these articles that quote you, where you say, "Perhaps people should diversify." What do you mean by "diversify"? What are they going to do? Are they going to produce llamas or something?

When you go to that tarification for the products, and it says 400 per cent tariff, or 274 per cent, that scares the living daylights out of people. Then we have today's headline, "We are going to spend $3 billion in two years on agriculture in Canada." We are not spending it on poultry, we are not spending it on these other products that I mentioned, and you are talking about the dairy programs and this type of thing. The Americans want our chicken program, and we talk about globalization. We all know that Canada is the only place Americans can sell their chickens or their dairy products. And we are talking about globalization. It is North Americanization, as far as that goes, because Americans want to rule the food world. They want to rule North America, and they want that market.

Let me refer to a figure. Butter prices, for instance, last year at this time in United States, special butter prices, US97 cents a pound. Butter in Canada is $2.49; butter in Carmel, California, in Canadian funds, is $5.09. Why? Because they have Monsanto. Some of the people from your department encourage this, this hormone. Those cows are going to give more milk, and they have a shortage of butter fat. Why? We do not have a shortage of butter fat in Canada. We always have a bit of a surplus.

Can you tell me, Mr. Gifford, why we would suggest what we did at the Uruguay Round to get rid of what we had worked so hard for, because that was the start of the destruction?

Mr. Gifford: Well, Mr. Chairman, I would disagree, with all due respect, that, in fact, anything has happened to the supply management industry as a result of the Uruguay Round. Quite the opposite. They are going from strength to strength.

Senator Whelan: Let us go back to where you are quoted in the various magazines as saying the butter problem is because of supply management.

Mr. Gifford: No, Mr. Chairman. As you are well aware, often the media does not exactly report the facts accurately. My comment was simply to refer to an observation made by the Canadian Import Tribunal that one of the problems that had been identified is that some ice cream plants in central Canada were unable to get sufficient milk for manufacturing ice cream. I simply reported the observation made by the Canadian Import Tribunal, Mr. Chairman.

To get back to your original question, senator, I will say the same thing to you as I would say to an American: How we organize and market our products is our business. It is only an American's business when they can demonstrate that somehow this is having adverse affect on trade. If we choose to have single-desk selling for wheat and if we choose to have single-desk selling for dairy, that is our business. It is not an American's decision as to how we organize our markets.

Senator Whelan: I always thought that it was our business. However, the World Trade Organization and OECD are telling us that we must become part of this great globalization, that things are going to be so great with free trade, and we followed that line of garbage. I never believed in unregulated trade. It would be like driving down an unregulated highway, where you could drive on the right side, the middle, wherever you wanted. That is what we are suggesting with globalization.

Look at what has happened in the banking industry. Japan was supposed to have the best banking system in the world, and it turns out that it was the most corrupt in the world. Recall, that was the one that was held up as the benchmark, the one to watch, and the one to go to.

You are dealing with a perishable product, food, and you are dealing with people. You said you are not a farm policy expert.

Mr. Gifford: I said that I am not engaged in developing the domestic emergency farm assistance program that was referred to by one of your colleagues, senator. I have, as you well know, spent my entire career in international trade in agricultural products. However, as I also noted, if you are going to be any good in that business, you had better know your domestic problems, because most of your trade problems stem from types of domestic agricultural policies. Therefore, clearly, you have to know exactly what the Americans are doing, what the Europeans are doing, what the Japanese are doing and what the Canadians are doing if you want to be an effective negotiator when it comes to agricultural trade policy.

Senator Whelan: Whom do we use then? Will someone in Foreign Affairs be our policy expert? Where do we get this expert, if it is not you? I would think you, Mr. Gifford, should have this domestic knowledge when you are negotiating. As Senator Hays suggested, you are giving everything away and not getting much in return.

For instance, the Secretary of Agriculture for the United States of America, when Senator Hays was talking about the quota on lumber, that secretary is totally in charge of agriculture, but also in charge of the forestry industry. In Canada, we have five ministers involved in foreign affairs. In the U.S., the Secretary of Agriculture is the sole person dealing with foreign aid, among other things. That secretary has tremendous authority.

I dealt with three U.S. Secretaries of Agriculture and they almost never talked to foreign affairs; they made the decisions. I think there is too much interference with foreign affairs people, who do not know a sow from a cow. As the chairman said earlier, you have to be knowledgeable about agriculture, you have to have a feel for agriculture to do that.

I am concerned about these people who are doing the negotiating. Who are those people, besides Mike Gifford, who are involved in the Uruguay Round, When you talked about going to Geneva, according to Mel Clark, it was too late then, the deal had been done. All he could do is sit back and watch what was going on. I tried to get the minutes of all the meetings, all the conversations between you and the others, and I was refused that. I was refused information about the times you met, what you said, et cetera. It was all a secret. I will show you the records and the responses I received. I was never able to find out from the chief negotiator, Gerry Shannon.

I knew Gerry Shannon when I was your minister. He never like supply management, he never liked Canagrex. How could I or any farmer who knew this man, knew his philosophy, knew his thinking, trust him? When I could not get the minutes or a record of notes related to the negotiations, I could not believe that I was in a democratic country.

Mr. Gifford: Senator, as a previous minister you are well aware that negotiators operate on the basis of cabinet instructions; they do not operate in a political vacuum. They are subject to very close oversight, particularly in the closing days of a negotiation, but even right from day one. If Canada is going to negotiate effectively in the next round, the Minister of Agriculture and the Minister of International Trade will have to go cabinet next summer or early fall to seek their colleagues' approval to an initial negotiating position for agriculture. The negotiating team will be subject to those cabinet instructions. Officials do not operate in a vacuum, Mr. Chairman.

The Chairman: I think there has to be one clarification here, and I will use Saskatchewan as an example. There are 70 producers in the chicken marketing board, so there is no way you can compare an exporting product like wheat, even through the Canadian Wheat Board, with the marketing boards because these are a selective group of people who are not dealing with the international market place. They are dealing only with the market here in Canada. If we were to take that route in producing wheat, we would end up with 50 farmers farming the whole country. That is what happened to the marketing board. There has to be some clarification and honesty about what, in fact, is happening.

This has been good for the dairy producers, I will agree. They are a selective group, but how many are there? How many chicken producers are left? They are big producers now.

Senator Whelan: They are the biggest customers for your feed grain in the entire world. The export market is not the biggest market for feed grain.

The Chairman: There is no question about that, but there are only 70 of them. We must be fair when looking at what happens in the country.

Senator Spivak: I, too, find that your elegant equations with regard to trade do not take into account the context in which farmers exist, which is the fact that the producer has not had an equitable return since the Depression years, whereas the processor and other players in the market are doing what is necessary. I do not see that fact reflected in these negotiations about what is fair between countries. As is said with respect to the issue of culture, this is not an industry like other industries, because without the producers, we do not have an industry. That is just a comment.

You mentioned that the Europeans moved from price supports to compensation by direct income payments. How much room, then, do we have in Canada? You mentioned the difference between $2 billion and $4 billion. Is our room $2 billion before we get into problems?

My second question has to do with import barriers. I should like to know Canada's position on import barriers.

I was taken aback by your bland assertion that it is such a shame the European Union is taking so long to process biotechnology. Look at what the Europeans have experienced. Hormones in chickens have caused very serious problems in Italian infants. Once that happens, it will take a few generations before we just whisk through all these hormones. It is not a one-sided debate. For example, let us take the terminator gene that Monsanto wants to put into canola, I think. These things have an impact. It is fine for the experts on the economic side to talk about smoothness and trade, but I do not think you are experts on the scientific community's debate with respect to this subject. Perhaps you are.

Does that $2 billion figure relate to one year?

Mr. Gifford: In the mid-1980s, our support levels, both monetary support and indirect support through the price mechanism, amounted to roughly $5 billion. Our obligation over the six-year transition period was to bring it down from $5 billion to $4 billion. However, that only includes the so-called trade-distorting support. There is no obligation to reduce the green programs.

As a practical matter, if I add up all the domestic programs we have, both federal and provincial, and the price support calculation, in 1997 we had something in the order of $2 billion worth of support. If Canada chose to increase its trade-distorting support, it could go up from $2 billion to $4 billion.

You must remember, senator, that not all of our $2 billion is trade distorting. There is nothing to prevent us from spending $10 billion of green support. I am the first to admit and the first to agree with you that the reductions in amber support negotiated in the Uruguay Round are fairly ineffectual. The reason is that the base period was so high in the mid-1980s that a 20 per cent reduction does not give you much in the way of a constraint. It stops it from going above that, but it does not bring down current support levels.

Senator Spivak: I do not understand. Does that mean the government can spend whatever it wishes in terms of income support?

Mr. Gifford: If they are green.

Senator Spivak: The government must ensure they are green. They are not constrained. That is a good point.

We were told by Mr. Lorne Hehn, Chief Commissioner of the Canadian Wheat Board, that there is a backlog in the European Union. Is that true with Canada as well?

Mr. Gifford: That is with respect to export subsidies.

Senator Spivak: We do not have that.

Mr. Gifford: No.

With respect to import barriers and what Canada's position will be, that is what the government is developing at the current time. It is involved in an extensive consultation exercise with industry and all stakeholders. We have had two successful conferences, one in Montreal and one in Red Deer, where all the stakeholders in the Canadian agri-food sector, from the producer through to the retailer, exchanged views on what we can get out of the next round of WTO negotiations. Where do we think we are heading as an industry, and how can we use that round to further our agricultural economic interests?

These consultations will be ongoing throughout the negotiations, but in the early phase there will be a major conference in mid-April of next year in Ottawa involving the provinces, the federal government and all stakeholders in the industry to discuss our negotiating position and how we reconcile the varying interests between the commodity groups. I would disagree that it is East versus West. I think some commodity groups have one point of view and others have another point of view.

I get the sense that there is an increasing recognition and acknowledgement that the agri-food sector in this country must get its act together and come out with a unified, strong and credible position as we enter these negotiations. It does not matter whether you are a supply management leader, a member of one of the cattlemen's associations, or someone from one of the pools. I think that is an objective and a goal they all share.

At the end of the day, negotiators will operate on the basis of the instructions they are given by ministers. We expect to get those instructions in the fall of 1999.

Senator Spivak: That conference will lead to a decision. Will the position of Canada prior to entering those negotiations be transparent? Will it be public?

Mr. Gifford: Yes.

Senator Spivak: Who will be the lead minister? Will it be the Minister of International Trade?

Mr. Gifford: It is the Minister of International Trade.

When it comes to agriculture, in the past, two ministers or possibly three ministers have signed the memorandum to cabinet -- the trade minister and the agriculture minister, and sometimes the trade minister, the agricultural minister and the finance minister. The negotiating position has always been handled on an interdepartmental basis. The three ministries, finance, agriculture and trade, work very closely.

In response to the senator's comments about the regulatory approval system in Europe for growth promotants, I am aware of the story to which the senator refers. Years ago, because certain farmers in Italy were abusing the use of diethylstilbestrol, some children were born with birth defects.

The response in Europe to that was basically to ban all growth promotants. However, the Codex Alimentarius and the World Health Organization recognize that growth promotants can be safe if they are used under supervision.

Certainly, in Canada and the United States, those growth promotants are approved for use, but they must be used correctly and should not be abused. Today, in Europe, there are many animals being produced through the use of so-called cocktails. There are all kinds of promotants being imported from Eastern Europe and being mixed together into ungodly cocktails. There are no regulations.

The problem is the lack of an adequate approval system. We freely acknowledge that any government has the right and the responsibility to ensure that their human plant and animal health are protected, and they should have approval systems to ensure that.

To conclude, Mr. Chairman, the point I am trying to make is that those systems are in place in Canada. In theory, they are in place in Europe. However, in practice, they have become so politicized that nothing moves through the system. It is a log-jam.

Senator Spivak: I understand that. However, the point is that it ought to be the right of a country to do that and then not be accused that this is a barrier to trade. It is like the issue of labelling milk. That is a right. It ought not to be the bureaucratic system that says it is not a right, if you know what I mean.

Scientific research related to interference with the reproductive and endocrine systems is coming on stream. It may or may not be a hazard. However, we should be able to proceed on the precautionary principle in these matters, which is recognized by Canada and other countries but not put into practice in any of the other areas such as trade discussions.

Senator Fairbairn: There has been a wide-ranging debate this morning. Basically, most of my intended questions have been touched on.

Listening to you, Mr. Gifford, and talking to the development of an agenda for the upcoming round against the background of how things proceeded in the Uruguay Round and the final negotiations, I am getting a sense of the mood in Europe. Given what they have achieved in the past rounds, the mood to which I refer is not one of giving up a great deal very soon, certainly not willingly, and the advantages that they have managed to build in.

It has been said that there is a mood in the United States that they are not prepared to entertain the notion of another long negotiation like the Uruguay Round. When we speak of a level playing field, there is not such a level playing field. One listens today and wonders if that is even a valid basis for discussion, since the feeling seems to be, "Get the best darn thing you can because it will not be a level playing field for our country, perhaps ever."

With the new round coming up, and if there are these conflicting moods in Europe and the United States, is there not a good chance that, in terms of agriculture, at the end of the day we will have something happen, as it did in the Uruguay Round? There will be a deal of sorts made between Europe and the United States. There will be some kind of a compromise to set their course. We will be left way out in the field, which will not be level. Regardless of policy going into these kinds of negotiations now, it is not a question of even offering things to bargain.

As I listen to you today, we seem to have little room to manoeuvre at all. This comes at a time when, our agricultural community, probably for a whole bunch of international reasons, is facing one of the worst crises that it has faced for a very long time. One of the most difficult comments that we have heard from other witnesses is that we are now in a state where farmers, with all their eternal optimism, are no longer saying, "Well, we will hang in there until the very last cent." They are saying now, in particular the younger ones, "We better start getting out while we have some equity, because in a year, or the next two or three, we will be out anyhow."

I am feeling a great sense of pessimism, without suggesting blame. The reality of the situation is that this is a large country, with a small population, which is entering into these discussions with two large players who have their own self-interests. Why would Europe wish to start dealing away its blue box with its history of war and its history of starvation and all these kinds of things that we have never experienced? It is almost a philosophical question as opposed to a direct one.

Mr. Gifford: I understand where you are coming from, senator. Certainly, in Europe, I expect that they continue to be more import-sensitive as opposed to export-oriented. That is for sure.

They do draw the same distinction that I am trying to draw. They accept that their border measures, in particular their export-assistance measures, can be very disruptive to trade. Certainly, on export subsidies, I think they regard it as inevitable that at some time in the future the international community will agree to ban export subsidies in agriculture once and for all. Thus, they must start to adjust the agriculture sector to a world in which export subsidies do not exist.

If they do that, you can hear them saying, "If we are to get out of the export subsidy business, do not expect us to give much access. Also, do not expect us to give up domestic subsidies. One way or the other, we will continue to support the rural sector."

In the United States, it is different. Although they do have some sensitive import sectors, such as sugar and peanuts, it is still fair to say that the bulk of U.S. agriculture is firmly supportive of a trading environment in which import barriers are coming down and export subsidies are eliminated.

To be frank, senator, without U.S. leadership on agricultural trade liberalization, Canada, Australia, New Zealand, Brazil and Argentina, go nowhere. It is essential.

As you are all aware, the politics of agriculture in all developed countries is the same. Therefore, we need U.S. leadership. Although we have our occasional problems and difficulties with our American friends, the bottom line is that without the United States leadership in agricultural trade liberalization there simply will not be a successful second round.

I would not underestimate at all the difficulties of the outcome of the next round.

However, I would suggest that to the extent Commissioner Fischler in Europe is successful in moving ahead in his reforms of the common agricultural policy which will enable him, amongst other things, to accept further reductions in export subsidies and possible elimination, and to the extent that both Europe and the United States move away from the traditional farm programs to more direct income support which are less trade distorting, I do not think it is as pessimistic as you point out.

As you know, we do have cyclical ups and downs in agriculture. This happens to be one of the worst downturns in a long time, certainly of the post-World War period.

This is a negotiation that will start effectively at the end of 1999. If it lasts three years, it will finish in 2002. You will have implementation through changes in domestic legislation that will take a year or so. At the earliest, you will not see changes coming out of the round until 2004. The more sensitive the sector, the more sensitive the issue, the longer the transition period -- you are speaking about transition periods of anywhere from five to ten years -- you are really talking about the rules of the international trading system from 2004-2005 onwards.

Although we are suffering a short-term downturn now, the long-term growth prospects for food and agriculture are still positive, given rising incomes and increasing populations. Sure, today Asia is treading water; however, we do expect that Asia will resume its steady economic growth. In an environment where populations and more importantly incomes for much of the world is going up, there will be good opportunities for agricultural sectors that are competitive, such as the Canadian agri-food sector.

I am not as pessimistic perhaps as you are, but I do not disagree that you can take it for granted. Agriculture has always been difficult to negotiate. There were no successful negotiations for 40 years under the GATT in agriculture. The last time we made some progress. We will make more this time. However, you are right, we will not end up with a completely level playing field at the end of the next negotiation. We are dreaming in technicolor if we think we will.

There are a number of us, countries with similar interests, who say we must continue to move forward, we must get these distortions down, and we must create an environment where the Canadian agri-food sector can grow and prosper.

We cannot give up. We cannot say, "Oh, well, the barriers are coming down, people will get more protectionist. Let's retreat to the Canadian market." The Canadian market is comprised of 30 million people. Simply put, 50 per cent of our farm cash receipts come from exports. If we do not export, the sector will die.

Senator Fairbairn: As a final question, you mentioned that talks are taking place at the moment with the various parts of the agricultural sector in government and that there will be a large conference in April to try to achieve some kind of a consensus going into the negotiations.

In terms of what you have just said, that without aggressive leadership from the United States going into these things we will not make gains, prior to that April meeting are we and other countries that are at the same level on that playing field aggressively working with the United States in that direction, or must we wait until we have a consensus in Canada?

Mr. Gifford: It is fair to say that the Cairns Group has been very active in the last year or so in reminding people that we started the reform process, however, we have a long way to go yet. We must keep the need for continued trade reform in agriculture on the international agenda.

It does not matter whether it is Mr. Vanclief making the point in Washington or Brussels or whether it is Mr. Goodale making the point in Argentina or Indonesia. Our international message is that it is important that the next round of agricultural trade negotiations get off to a good start, that we need to be ambitious in our expectations.

Clearly, we need to get our own act together. It is recognized amongst all players and stakeholders that we must reconcile our differences and reach a unified position. If going into this negotiation half of the industry is saying one thing and the other half is saying something else, we will be ineffectual. We must get our act together first. However, simultaneously, we will be working with other like-minded countries, including the United States. There is already a consensus in Canada that we should be aiming to rid ourselves of export subsidies. Obviously that is a view we share with the United States.

We recognize in Canada that, while there must be adequate regulatory approval processes, you cannot simply shut your eyes to the advancement of science and say that you cannot use biotechnology, that biotechnology will be an increasing fact of life in agricultural trade. Somehow we must find a way of ensuring on the one hand that consumers are protected and on the other of ensuring that these processes are not used as disguised barriers to trade. That is a concern we share with the United States.

We share some interest with Europe. We do not like the fact that the Americans have enormously large export credit programs for agricultural products, that although they are not as directly distorting as export subsidies, nevertheless they change cash markets into credit markets. Therefore, we have a shared interest with Europe in bringing agricultural credit programs under international disciplines.

We have many alliances. We will not be able to articulate our voice as strongly as we would like until we have a unified consensus in Canada as to what should be our negotiating objectives. That is the first priority.

If history is any indication, the reality is that the Americans and the Europeans will reach a bilateral agreement at some point. However, it will be at the end of the negotiations. Where the Cairns Group, including Canada, can be influential is early on, when we are basically the only ones putting concrete ideas on the table. If we have good ideas, they will be accepted. We must be prepared to hit the ground running at the end of the year and to have our own position well thought out and have some good ideas as to how to move the process forward.

In that regard, we need to support those U.S. agricultural interests. Our argument with the administration is that you need to push the agricultural trade agenda in the next negotiation. We cannot return to the good old days, when the trade and agriculture ministers in the developed countries said: "Agriculture is too politically sensitive to touch. We will shove it off into the back room, where nothing gets done, and concentrate on those sectors where it is easy to make progress; forget about agriculture."

Forty years of doing that internationally has resulted in the chaos we have in world agricultural trade. We need to continue doing what we started in the Uruguay Round, and gradually and progressively move the trading environment in the right direction. It will not solve all problems overnight.

Even if there were significantly reduced trade barriers and the elimination of export subsidies, you would still have cyclical ups and downs in agriculture because that is the nature of the industry. Senator Whelan and his colleagues are correct; agriculture is not the same as other sectors.

Domestic policy-makers must recognize that there will continue to be fluctuations. However, the challenge for them is to design farm support programs that do the job they are supposed to do while having minimal adverse effects on trade. That is the challenge of every minister of agriculture in a developed country today.

The Chairman: On that subject, two things are happening currently. First, the contracting of acres, which is at the very beginning stages. Where will that lead? I have investigated this subject in the past week on Roundup Ready canola, for instance.

Last year, 225 farmers contracted land at $25 an acre with seed and the contract rights to seed it on there. They must pay that back to the company. In this case, it was Monsanto. They have no choice. If they seeded that seed, they would be in the courts today. They are not making a big issue of that, but the question is: Where will this lead?

The second thing that is happening in this regard is that the grain companies are amalgamating so fast. Weyburn Terminal right now has a deal with ADM or United Grain Growers. Conagra is paying the freight for all the grain to come into their terminals east of Moose Jaw. At 5 cents a bushel, they will pay the freight from any place in Saskatchewan. My belief is that this thing is moving so fast that the departments are not on top of what is coming in the future, just as you indicated. There has never been a movement of this momentum as there is an agriculture today, at least in the grain industry.

Mr. Gifford: It is across the industry, Mr. Chairman. You are quite right. The rationalization and consolidation in the food processing sector has been far more dramatic than at the primary producer level.

The bottom line is that you must have the processing sector and the primary producing sector working together. They cannot work at cross-purposes. In Senator Whelan's area, the classic success story, I think, has been the tomato growers working in collaboration with the processors. They have a viable industry today that some thought would disappear as a result of the free trade agreement; however, because the producers and processors have worked together to increase yields, that is a terrific success story.

It is human nature that primary producers regard processors in a somewhat contentious way. However, the reality is that they both need each other.

With regard to your reference, Mr. Chairman, to consolidation of grain handling, our American friends seem to be somewhat paranoid about the Canadian Wheat Board. However, it is interesting to note that if the Cargill and Continental merger goes through, Cargill will account for over one-third of total U.S. grain exports. We must keep all of this in perspective and perhaps some of those American concerns might be diverted elsewhere.

The Chairman: Can the Saskatchewan or Alberta or Manitoba wheat pool even survive in this type of competition? That is the talk among many of the farmers today on the Prairies, I can assure you.

Senator Hays: I have a question of clarification with regard to a question that Senator Stratton asked you. It deals with the reconciliation of commodity groups and differences. If we had given up supply management totally in the Uruguay Round four years ago, do you believe that that would have made a difference in the result of the round? We now know, with the benefit of hindsight, that what we would like to have achieved was no blue box for Europe because that has been used to continue to do what it is that they did before. I would submit that the blue box is a disguised red box program. We also would not have wanted the U.S. with their green box support, or grandfathered support, which is really how I understand they are doing their commodity-specific support at the present time.

If we had given up supply management, would we have been able to negotiate an agreement that would have eliminated those? After all, they are the root cause of the problems the cereals industry experiences at the present time.

Mr. Gifford: I have made this observation a number of times, Mr. Chairman. I have heard the statement made by some that surely Canada's export interests were sold off to protect the supply management sector. My response to that has always been, categorically, no.

We had a defensible and credible position for dairy and poultry because we were arguing for a clarification of Article 11. We were offering improved access. We were offering limits on exports. We had a credible position. It was because it was credible it lasted so long. Notwithstanding the fact that we were up against the combined weight of the United States and the European Union, basically we could maintain credibility right up until the end of the negotiation. I would disagree with those who would say that we must have suffered, in terms of our export interests, by defending the supply management interests for so long and so hard.

I would argue that we managed to have our cake and eat it as well in that negotiation because Article 11 did exist at that time, and it did allow us under the GATT to maintain import quotas in support of effective supply management. We were offering improved access. We were offering to accept limits on our export capability. Therefore, we had a credible position and we did not have to sacrifice the pursuit of our export interests by maintaining that position.

The conundrum and dilemma that we will face in the next negotiation is that we no longer have Article 11. No one gives a damn whether we have supply management or not justify high tariffs; those high tariffs now exist. The issue is not whether we have supply management; the issue is to what extent are the Canadian import barriers going to come down.

The challenge for the industry, and for both levels of government, is: If the only import barrier in the future will be the tariff, and we have tariff rate quotas and high over-quota tariffs for some commodities in some countries, how do we reconcile our export interests, which will clearly be aimed at reducing to the maximum extent possible those foreign barriers, and at the same time recognizing that if you wish to reduce other countries' barriers you will be under pressure to reduce your own?

We must think our way through that. No one is suggesting to the slightest degree that somehow supply management will come to a crashing end. So long as Canadian producers for those commodity sectors support that system, it will continue. The issue is what we will do at the border with respect to the height of the over-quota tariffs, the size of the tariff rate quota and the level of the within-quota tariff. Those are the issues with which the industry must come to grips.

Senator Hays: On that count, it is an extraordinarily complex problem for us because the practice of supply management is a closed system that includes a levy to reduce surplus from the market, which includes quota values that comprise a substantial part of the farm balance sheet, which I think those who are responsible for the negotiation must have in mind when they are carrying out the negotiation, because if that is not the case, then justice cannot be done to the complex problem that we would face.

Isolating different things and saying you will only look at this while someone else is looking at that and someone else is looking at something else again can lead to some difficult problems when the reality is that all these things are interrelated in a way that I do not think we fully appreciated in 1994 and the time leading up to that.

Mr. Gifford: I could not agree more with your last comment, senator. These are all interrelated issues. I think the difference between the Uruguay Round and previous rounds is that it was recognized that you must deal with not only the border measures, the import measures and the export assistance measures, but also you must recognize the trade-distorting effect that domestic support can provide. This was the first tentative step in governments recognizing that reality.

I accept that, up until the Uruguay Round, those linkages were not recognized, but I would suggest it was because those linkages were recognized that we had disciplines on domestic support in the Uruguay Round.

Senator Hays: Given the objective -- ideological, economic or whatever you want to call it -- the agricultural sector will restructure. Farmers would be sympathetic to going through that process in terms of a fair share of the pain with other farmers in their own country as well as other farmers in the world. However, that is not happening. Do you think you can make that part of the negotiating objective that we would want to achieve in the next round?

Mr. Gifford: That will certainly be a consideration by all the negotiators. Clearly, some of the results that will emerge in the next round will cause problems. There will be a preoccupation about an equitable sharing of the so called "adjustment burden." That is why it will be difficult to say, "I want maximum liberalization on my export interest, but on my import sensitivities I want to maintain the status quo." That is not a situation that is unique to Canada. Europe has the same problem, as do the Americans and the Australians. Their pork industry is inefficient and needs to restructure badly in order to be competitive.

We all have the same problems. We are all in various shades of grey. There is no black or whites in agricultural trade. The best we can do is head in a direction that we think, over time, will result in less trade distortions and in a reduction in the disparities. We will never achieve the so-called level playing field entirely, but we can work to reduce some of the peaks and the valleys.

Senator Fairbairn: Senator Hays spoke about supply management and our position on it in the last round, as well as the notion now that no one cares if we have it. The question is: To what extent are barriers coming down? Is it not true, Mr. Saint-Jacques, that Canada's pricing policy in terms of exports of dairy products has been placed before a WTO panel by the United States and others, such as New Zealand? Will this area be part of our picture going into the new negotiating session? What happens if our position in Canada vis-à-vis the export of these products is not supported by the WTO panel? Where does that leave us?

Mr. Saint-Jacques: Right now, we are confident that we will mount a successful defence. We have had two hearings before the panels. From what I hear, it went well. The panel is to rule on this in late March. Panel decisions can be appealed; however, I do not wish to speculate what the panel will decide at this point in time. We are fairly confident that our measures are defensible and have been well defended. I should add that the defence of our program was done not in isolation but in full consultation and coordination with all the stakeholders. Not only Agriculture Canada but also the CBC and the dairy producers were represented and participated fully in Geneva.

In terms of being part of the picture, I think that whatever the outcome, it will be part of the picture. However, as Mr. Gifford pointed out, the negotiations will be focusing on subsidies and border measures. The internal structures, however, are our own.

Senator Whelan: We were talking about subsidies. I am somewhat out of date, but at one time it was considered that a subsidy had to be from, say, the treasury of the province or the state or the federal government. That has changed, has it not? Is that not under the World Trade Organization now? When I look at the scale here, you have "Producer Subsidy Equivalents for Canada."

Mr. Gifford: It includes both the federal and provincial governments.

Senator Whelan: It is still the same, is it? That is, it must be considered a tax dollar to be considered a subsidy?

Mr. Gifford: Yes.

Senator Whelan: I do not understand your figures, then, when you say "producer subsidy equivalents." What does that mean?

Mr. Gifford: This is a technique for trying to compare apples to oranges, to some extent. If you only measured the treasury money that went into farm support, you would get one figure. These numbers also include what we call a calculation of the price support effect. The difference between the internal price and the world price is taken to be the price support effect. You combine the two. If you just measured treasury dollars, you would get a distorted picture of the actual support provided to each agricultural sector.

In Canada's case, most of the support is provided in the supply management sectors. That is because when the OECD does the calculations, it is the difference between the internal price and the world price.

Returning to Senator Fairbairn's comment, the bottom line is that right now Europe has supply management for milk, as do we. They have quota values, as do we. They will face the same problems as us, in terms of reduction of import tariffs.

Senator Whelan: Mr. Gifford, you say that the dairy producers have the same situation that we do. There is no subsidy for food in Canada. No tax dollar goes into that at all. However, some tax dollars go into the milk that goes into the processing for the industrial product. Is that the same in Europe, too?

Mr. Gifford: In addition to the dollars that are spent on the old deficiency payment system for industrial milk, in Canada the calculations take into account the difference between the world price for dairy products and the Canadian price. The European numbers take that into account as well.

Senator Whelan: That is economic jargon. The economists change that to show how bad we were, yet the consumer spends less of his or her disposable earnings on food than anywhere else in the world. We are subsidizing those people by putting a high-cost product on the market.

You spoke about the tomato crop. I used to be a tomato grower. At that time, we had five big tomato plants in our area. We have, perhaps, two now: one in Dresden and one in Leamington. They are sort of small ones. We lost four good plants, namely, Libby's, Campbell Soup, Hunts and Del Monte, as a result of free trade. Our tomato acreage is not as good as it was when I grew tomatoes.

Heinz had decided to move some of their operation to the United States, but because of the climatic and soil conditions, et cetera, in southwestern Ontario, they moved it back. I do not know if you are aware of that. This was our largest crop ever in Leamington. Approximately 269,000 tonnes of tomatoes were processed. They had perfect weather here this season. They took every tomato, because in California they had bad weather and lost a lot of their crops.

I have strong reservations about what has been said by other senators here today about why we have not moved faster to help our farmers in this tragedy. The Province of Quebec is going ahead with an ad hoc program for their pork producers while we sit back and the economic situation grows worse.

I know a hog producer who is losing $90,000 a month. He is not a young person. He does not want to refinance and he does not know what to do.

The head of the Canadian Imperial Bank of Commerce says farmers should try to diversify. Perhaps they should go into the banking business where there is a non-perishable product and there are good profits to be made.

You talked about a waiver and said that countries such as Switzerland said "no way." This week, in the Foreign Affairs committee in the Senate, it was brought to our attention that Japan said "no way" on fisheries as well as on agriculture.

We are led to believe, Mr. Gifford, by yourself and other officials in Foreign Affairs, that we had no choice. One hundred and thirty-one countries, some of which could not send a chicken to market, voted against this.

We are under the impression that we had no choice, yet Japan and Switzerland got a waiver. The United States got a waiver for dairy products, yet we did not get one.

Can you comment on that?

Mr. Gifford: Country waivers no longer exist under the WTO. They did exist in the GATT. One of the great accomplishments of the Uruguay Round was to terminate every one of those country-specific exceptions and waivers. We all live by the same rules under the WTO, whether we are big or small.

APEC is not a contractual organization; it is a voluntary organization. Out of APEC came this initiative to ask whether it would not make sense for the member countries of APEC to reduce their protection unilaterally, outside of the WTO. The Japanese minister of agriculture said that there was no way he would reduce protection on forestry and fish. That being said, the Japanese recognize that fish and forestry will be part of the next round of WTO negotiations. That will be a contractual negotiation and there will be no country waivers.

Senator Whelan: Mr. Gifford, we have heard evidence that they have that in the World Trade Organization now.

Mr. Gifford: That evidence may have been in reference to the deal on rice. At the end of the negotiations, everyone was supposed to either tariffy or exercise one other option. If you did not want to tariffy your import quota, you had to provide a very large minimum access commitment that would last until the next round, and if you wanted to renegotiate that, you would have to pay for it.

This option was given to the Canadian supply management industry. They turned it down as they did not want to give up 8 per cent of the domestic market as opposed to going to 4 or 5 per cent. They elected to go along with the general rules on tarification.

In the case of rice, the Japanese had to pay 3 per cent more access in order to keep their import quota, and that import quota lasts until the end of the next negotiations. If they want to continue it, it will cost them big bucks to pay off the Americans, the Thais, and anyone else who is interested in expanding rice imports to Japan.

Senator Whelan: I specifically remember that if our consumption of eggs increased 2 per cent, the Americans had the right to increase their export to us by 2 per cent, even though they took no part in the advertising in our country to encourage people to eat eggs. It is a fair system, but the Americans want to take over the whole market. They do not want to share in a practical, democratic, economic fashion.

The Chairman: Thank you, Senator Whelan.

I wish to thank the witnesses for a very interesting and informative morning. This is a very broad subject involving various sectors of agriculture, which is why it is so important for the committee to deal with it.

The committee continued in camera.