Proceedings of the Standing Senate Committee on Agriculture and
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.
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
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
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
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
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
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
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
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
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 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
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
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
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
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
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
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
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
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 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
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,
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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.