Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 26 - Evidence


OTTAWA, Thursday, December 3, 1998

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

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

[English]

The Chairman: We have been made aware of the very serious situation that exists in agriculture across Canada, particularly in the area of the hog industry and the grain industry.

This morning, we are pleased to have with us Ms Sally Rutherford, the Executive Director of the Canadian Federation of Agriculture, and Jennifer Higginson, Trade Policy Analyst.

Ms Sally Rutherford, Executive Director, Canadian Federation of Agriculture: We would like to speak to you today about where the CFA sees the World Trade Organization process going over the next little while; what kind of an agreement we are looking at; and what the elements of that agreement might be. The caveat that we would point out is that that this is a fluid process. As time goes by, our members develop their thoughts, and our thought process changes as well.

As we move towards our annual meeting at the end of February, we will firm up our positions, always with the proviso that we can change our mind as things develop. Many of the issues out there will take on lives of their own over the next six months, and we will be following those issues quite closely. They may indeed affect the detail of our position, but our base position, as Ms Higginson will tell you, will certainly remain the same.

Ms Jennifer Higginson, Trade Policy Analyst, Canadian Federation of Agriculture: I have been with the CFA for a number of years. I work mainly on trade policy, and certainly very closely with our trade committee. A meeting of that committee could consist of anywhere from 15 to over 50 people, depending on the issues being discussed.

The committee meets about six times a year, depending on the issues that come up. We form our policy based on consensus with our members. It takes a lot of time and effort to come to a consensus. In terms of trade policy, that is what we need to do; discuss issues, bring everyone around the table to find solutions that everyone can agree to.

I will talk to you about the upcoming negotiations on agriculture, which, it is said, are to be launched in the fall of next year. The agreement on sanitary and phytosanitary measures, as well as services, is also scheduled for negotiation, and the launch will be at the end of next year.

There have been a number of questions as to the scope of the next negotiations, and that is still unclear. We definitely know that agriculture, sanitary, phytosanitary, and services will be included. However, there has certainly been some discussion as to whether industrial goods will be included in this negotiation. Depending on the scope of the upcoming round, that would certainly change the dynamics of the discussion, and impact on the length, and probably the outcome, of the negotiations.

I will talk to you about forming issues for the key segments of the trade policy that we currently have and market access -- actually getting product out of Canada and into another country.

I will also talk about export subsidies. Although we have an agreement from the last round of negotiations that we would have a 36 per cent reduction in value, and a 21 per cent reduction in volume, they still exist. As we move into a period of low prices, we are certainly seeing a rebirth of the use of export subsidies.

I will also talk to you about domestic support. I am sure you are all experts on this subject after your series of hearings on international subsidization. I will touch on that as well, because it is an extremely important component.

I will also touch on non-tariff barriers. They have been emerging in the last few months, and have affected our ability to take advantage of some of the market access that was negotiated in the last round. We need to learn from our experiences in the Uruguay Round, and then build on that as we go into the next round of negotiations.

In the last round, one item that was agreed to was the establishment of a dispute settlement panel. That has been very beneficial to our producers, and to Canada as a small to medium-sized country. Through this panel, Canada has been able to defend what was negotiated in the last round, as well as to defend some structures in place in the systems we use.

In the last agreement, any panel decision that was made could be blocked by one of the countries. In the current agreement, countries cannot block the decisions of the panel. That is definitely a big step forward for Canada. It will be interesting to see how the hormone issue works out with the European Union. If they could block that decision, they certainly would have done so by now. They are having a lot of difficulty because they cannot block it, which is a result of the dispute settlement panel and what was agreed to in the last round of negotiations.

The main point is that we need enforceable rules. If we are going to agree on a set of international trading rules, they have to be enforceable. This is very important for a country the size of Canada, because we are a net exporter.

In terms of the development of Canada's negotiating position, from a CFA perspective, we think Canada has two main goals as we approach the next round. One of those goals is to improve market access. At the same time, however, a number of commodities have distinct domestic interests as well. Those commodities will be similar to those of almost every single country going into this round. I do not think we need to move away from that, because this is exactly where the negotiations are going to end up.

Our goals can be achieved in this round. They are not hypocritical, nor are they mutually exclusive goals. Every exporting country that enters into the negotiations has dual goals. Even those countries that profess to have no intent aside from trade liberalization, certainly can demonstrate in their actions that they are willing to go to great lengths to protect their domestic interests. We certainly see this in some of our neighbouring countries -- in the U.S., for example, in terms of sugar, tobacco, peanuts, and cotton. While they are large supporters of trade liberalization, they are certainly willing to go to great lengths to protect their domestic industries as well.

As we develop our position going into the next round, we should not get trapped into thinking that we must resolve -- or reach a consensus on -- every single possible negotiating issue at the beginning of the negotiations.

In the last round of the Uruguay Round, Canada put forward its detailed position early on, within two to three years of the beginning of the negotiations. The negotiations continued on for a number of years, and finally, two to three years later, they came to a Blair House Agreement between the European Union and the United States. In hindsight, I think that, if Canada had known what the participants would come out of the Blair House Agreement with, we would have put a different position forward two years earlier.

We need to look at what happened in the last round of negotiations, and to think about how we will approach this upcoming round. We do not necessarily need to iron out every single detail. We need a strong, credible position going into this next round, but it is a fluid process that is evolving. Before we put our cards on the table, we need to see where some other countries position themselves.

I will talk to you briefly about domestic support. Further to your previous hearings, you are already familiar with domestic support and international subsidization levels. From our point of view, the export level to Canadian farmers has been substantially reduced over the last decade. It is public information, in terms of the World Trade Organization notifications.

We have seen that there are no limits on spending on green programming. In other words, there is no reduction commitment in terms of programs that are considered green. For amber box programs, there is a reduction commitment of 20 per cent, which was required in the last round of negotiations.

As a result of the U.S. and the EU Blair House Agreement, the blue box program was developed. We would consider those to be amber programs -- prior to the Blair House Agreement they were also considered amber programs -- and they managed to get them into a separate category, not subject to reduction commitments either. At this point in time, I believe that only the European Union has programs in the blue box category, but there is no reduction of those programs.

In terms of amber support, we are spending 15 per cent of our allowable spending limit under the last round of the agreement. Therefore, we have reduced our spending by 85 per cent since the last round. In comparison, the European Union is spending 60 per cent of its allowable spending limit. We would argue that, in our mind, and I think in our negotiator's mind, if they could have managed to get the blue box eliminated in the last round, it would have been done.

We would consider the blue box to be very similar to amber. The U.S. -- at least in 1995 -- was spending 30 per cent of the amber limit on blue box programs. The European Union spent another 27 per cent of the amber limit on blue box programs. They are not subject to reductions, but we would argue that they still are trade distorting.

In terms of green program spending, Canada is spending about eight per cent of the value of our production, whereas the U.S. is at about 24 per cent of the value of its production. In the WTO, it takes a number of years before the reporting mechanism catches up to the actual programs that are taking place, therefore, these are 1995 figures. They do not include the extra $6 billion that the U.S. has put into its programs in the past year, nor do they include any of the additional dollars that the European Union has put into its programs.

From our point of view, the domestic support provisions that were agreed to -- the 20 per cent reduction in amber expenditure in the last round -- will not have a great impact in terms of levelling the playing field. There is so much room to manoeuver within that 20 per cent reduction and Canada has already reduced its expenditure. However, we are not seeing other countries coming down from those commitments to the same level that we have already reached.

In terms of export subsidies, those would absolutely be the most distorting of all of the domestic support or subsidy programs. In the original negotiations, they were considered to be red box programs. It was agreed that they would be reduced by 36 per cent in value and 21 per cent in volume. Canada eliminated them completely. We went to a 100 per cent elimination of export subsidies in the first year or two after the agreement. We certainly are strides ahead of a number of the other 136 countries that agreed to the WTO.

What we have seen recently, in a period of very low prices, is most notably the European Union -- but also the U.S. -- starting to put export subsidies back into place. The reduction was only 36 and 21 per cent respectively. In the first few years of the agreement, it was not necessary to use export subsidies, because we were dealing with very good prices, or the export subsidies were fairly small and it was not a problem. These countries are now starting to put the export subsidies in place.

Unfortunately, we are seeing the text of the agreement being interpreted somewhat differently than perhaps the intention was when it was written. The European Union has rolled over the unused export subsidy commitments from the first few years and has used them in the latter years. This has contributed to the decrease of the world price and has made it even more difficult on our exporters to compete in world markets as the prices move down.

We also are concerned with the use of export credit and food aid. In terms of export credit, it was discussed in the last round of negotiations, but was deferred to be discussed within the Organization for Economic Cooperation and Development. Those negotiations have basically fallen apart, largely because the U.S. was not prepared to agree to rules and terms on export credit.

We have seen some use of export credit, and our fear is that export credit not be limited to the life of the product. If you are going to give credit for a product, that credit should not be greater than the life of the product. If you are selling grain, you are looking at a one-year term, maybe three years. You are not looking at a 20- or 30-year term, because that really is an export subsidy in disguise. We want to ensure that there are rules concerning the use of export credit, so that it is used on a commercial basis, and not as a disguised subsidy.

We certainly support the use of food aid. If it is food aid, there should not be conditions imposed on it, and it should not just be the dumping of product on commercial markets to take away commercial sales.

If we manage to eliminate export subsidies, which we would strongly support in the next round of negotiations, we need to ensure that, to the largest extent possible, the use of export subsidies is reduced. However, we do not want that to turn into disguised export subsidies through the use of export credit.

In terms of market access, we want to ensure that, when we receive commitments in market access, we are getting real market access, not just market access on paper; that we can actually move product without being held up at borders on non-tariff barriers, sanitary and phytosanitary barriers. We have been concerned with the way some import permits have been auctioned off by producer groups. These groups are often responsible for distributing the import permits, but there is no desire on their part to bring competing products into the market. It makes it very difficult and you start seeing low tariff rate quota fills.

In terms of the aggregation of tariff lines, we have seen the European Union put a number of meat products together in one tariff line and give the five per cent of consumption the minimum access commitment. They have not given their commitment in some of their sensitive products, but they have given it in other products. There is not a great deal of pork going into the European Union. Unfortunately, pork has been aggregated with a number of other meats and it is very difficult for them to take advantage of the market access that we felt was negotiated in the last round.

In all the supply-managed commodities, Canada has given more than the five per cent minimum access, as agreed to in the NAFTA agreement. We have been very clean and up front, and certainly have allowed our full commitments in TRQs coming into Canada.

On market access, one priority is for the grains and oilseeds sectors; that they not only have market access, but that they receive parity of access for competing products and parity of access between raw and processed products.

For example, canola should enjoy equivalent access to U.S. soybeans. If they have managed to negotiate market access, then canola should be going in at the same rate of duty. As well, canola oil should be going in at a similar duty as canola seed. This is certainly very important for our exports.

In terms of non-tariff barriers and sanitary and phytosanitary barriers, especially in this period of low prices where a lot of countries are looking to protect their domestic interests, veterinarian inspection standards are becoming an issue. Environmental standards are popping up. There are sudden changes in standards.

GMO is able to get some of our products into certain markets, not based on science, but on genetically modified organisms. There are problems with labelling hormones. There is a range of non-tariff barriers, for example, the recent issue with Dakota having difficulty getting pork and beef, and going through inspections there. The issue of trade barriers is going to be very important in the next round of negotiations. These problems have to be worked out, however complicated the issues are. We must ensure that the market access we manage to negotiate is real, and will not be stopped with non-tariff barriers.

We are also aware that state trading enterprises are going to be attacked by the United States. It is very important that our producers be able to maintain their right to choose the marketing structures they want, whether it be the wheat board or any other marketing agencies and structures.

The Wheat Board has been investigated often enough to prove, without a doubt, that it is operating under a clear and transparent set of rules. We must ensure that producers are allowed to use the marketing structures that they choose to use.

The Chairman: You mentioned that Canada was strides ahead of other nations in meeting the obligations that were laid down in the Uruguay Round. Quite frankly, as a defender of the Federation of Agriculture, the farmers feel that we are a 100 per cent behind. In other words, we moved ahead, gave everything away, and other nations did not. As I see it, it is a whole new approach.

What was the role of the Federation of Agriculture in the negotiations?

Mr. Gifford was here and he made the statement that every country went to the table with what they could give. We gave away the freight rates. We gave away, as you say and I agree, 100 per cent and received nothing, or very little. We have the European Common Market subsidizing at 103 per cent, $175 an acre. We do not have much left to negotiate with, because we have given everything. That is pretty serious.

That is the way the farmers see it. I am a farmer and I am here representing their position.

Ms Higginson: I guess we would agree that definitely the Western Grain Transportation Act was given away. However, that was not a result of the WTO Agreement. We were only committed to reducing export subsidies by 36 per cent in value and 21 per cent in volume. It was a domestic government policy decision to eliminate it. We had six years to decrease our export subsidies by 36 per cent and we chose to decrease them by 100 per cent in the first year. Therefore, it is not as a result of the WTO Agreement, and it is not something we pushed for.

As far as farmers are concerned, the impression is definitely out there that we gave away everything in the last round and did not get very much. However, when you actually look at what was agreed to, we gave it all away without necessarily agreeing to do that. We did it for free.

The Chairman: Did the Federation of Agriculture speak for the farm community? Do you feel that you had input in the negotiations and in the agreements that were reached? Was there adequate input on behalf of the farm groups?

Ms Rutherford: We certainly had a great deal of access to the negotiators and a great deal of opportunity to make our views known. We know, as a matter of fact, that the position that was essentially reached at the CFA trade table formed the basis of the Canadian government's position on agriculture.

The point that Ms Higginson made is very important. The truth is that Canada was in significant financial difficulty, and the choices that Canada made to cut programs were based entirely on a domestic financial decision that was separate from what we agreed to under the WTO. I think that is very important to remember. We did not give anything away that we did not have to give away, in terms of how we implemented those agreements in relationship to our financial situation. There is general agreement that the financial situation that Canada was in required some significant action.

Now, what that action was, and how it was parcelled out, was definitely not to everyone's liking. There were definitely problems and concerns about the way that the WGTA was eliminated as quickly as it was. There were ongoing arguments about the fairness of the distribution of the pay out.

One has to be very careful, because it does come back to the kinds of discussions that we have been engaged in. We must ensure we are not mixing apples and oranges; that we are not mixing the result of trade agreements in terms of the actual signed pieces of paper and government policy decisions. Every single country has made those decisions, both in terms of what they negotiated, and in terms of what kinds of programming they made available. Every country made choices, in particular, choices in relationship to their ability and the political will to fund those kinds of choices.

Senator Whelan: My views on WTO and NAFTA, and all these great worldly organizations are well known. They sound good, but they just do not work out that well. For instance, last Monday, Peter Scher, the United States Ambassador for Agricultural Trade, -- you will notice I said, "United States Ambassador for Agricultural Trade"; some people might not call that a subsidy, but we do not have an agricultural ambassador for trade -- said that the United States would seek a worldwide phase-out of agriculture export subsidies in the next round of world trade talks. Would you comment on this? What confidence, what assurance, if any, do you get from that type of statement from their ambassador for trade?

Ms Higginson: In terms of what U.S. representatives state, it is very different whether they walk the talk or not. We are pushing for the elimination of export subsidies, and they are pushing for the elimination of export subsidies in a much increased trade liberalization. However, we are not using any export subsidies and they are.

Senator Whelan: You are not answering my question. I want to know if you believe him.

Ms Rutherford: I believe that he said it. The Americans have a very interesting way of dealing with it. Agriculture in the U.S. is even more political than it is in Canada, if that is possible. In the U.S., there are numerous factions, as there are in Canada, with varying levels of support. Eliminating export subsidies is, indeed, one of the goals.

How they will interpret what is the elimination of export subsidies is the interesting question. They may actually, from their point of view, be proposing to eliminate export subsidies. From our point of view, or other countries' points of view, they may not be actually proposing to eliminate export subsidies at all, or at least not quickly and not absolutely. One would want to look at the fine detail, but not now, down the road, to see whether it is there.

Senator Whelan: I am bringing this up again, because I am alarmed that this is their Ambassador for Agricultural Trade. He is also quoted as defending his country's recent $6-billion bailout by noting that countries need to support their farmers without putting a burden on other countries.

How can they do that? Is that realistic?

Ms Rutherford: Senator, we are really hoping that, this afternoon, Mr. Vanclief will tell us that we are going to do exactly the same thing here. Quite honestly, I think governments have an obligation to support their citizens. In agriculture, it is not just the citizens, or not just an industry that it is supporting; it is whole communities. If that is the way the Americans see it, I do not think it is very different from how we see it.

One of the things we must to be very careful about over the next period of time is that we do not end up in an escalation of support, in the same way we did before WTO. That would be incredibly damaging, and it is not something that anybody is looking for. At the same time, nobody ever expected we would be in the situation that we are in right now, not even a few years ago.

Every country realizes that, sometimes, it has to do what it has to do. I am certainly not supporting the amount of the largesse that they have distributed and the way they have distributed it. However, there is a need in the U.S., in some sectors, as there is in Canada, for some support right now. It comes down to not simply saying we are going to support the pork industry or the grains industry. What we are really looking at is the support for the economic infrastructures of extensive parts of rural Canada.

Senator Whelan: He says, and I repeat, "by putting this huge subsidy, but never put a burden on another country." His statement is false, because they cannot help but put a burden on other countries, especially one that is as close as we are to them. It is a tremendous burden on us. To me, it makes a farce of WTO and NAFTA. They fly out the window, and I think it would be a good idea if they did.

Ms Rutherford: On the other hand, senator, I am sure you would not want Canada to be constrained in its ability to support its farmers.

Senator Whelan: No, I would not. However, I do not believe in subsidies either. I believe in farmers organizing themselves. I am sure you must have followed the agriculture committee report of the House of Commons. Supply management was told to bend, but who is telling them to bend? The head of the canola growers is saying "We are going to give you away; we are going to use you as a trading point, because we have to have something to offer to give."

This part of our agriculture community is stable. Consumers are getting a good deal, when you compare what Americans are paying for butter, because of the shortage of butterfat in the United States. Simon Sigal, a long time agricultural official, who is now an Ottawa consultant and the Chairman of the Canola Council of Canada, told the House of Commons on November 19 that there is little or nothing export sectors can offer. However, he said that supply management tariffs are a visible target.

That is as ancient as a medieval system of trading or bartering that took place thousands of years ago in agriculture. The World Trade Organization and NAFTA are still using this system. I cannot believe that we are accepting that.

In your brief today, you state you are for orderly marketing. However, you also state that you are going to get into those markets. That is the same thing as he is talking about. He is ready to get into those other markets with canola, but he is ready to give away the cows, the chickens, the turkeys and everything else that has supply management. Under Market Access, you state:

Pursue full implementation of the WTO minimum access commitments and the establishment of measures that will fully achieve the Uruguay Round goal of five per cent minimum access by 2001.

That is what he also wants, but he is ready to give something away. Consumers get a good deal. If producers are efficient they can survive.

Ms Rutherford: That is Mr. Sigal's point of view, not the CFA point of view. We do not believe that it is necessary to give away supply management.

Senator Whelan: Are you on the telephone asking, "What in the world are you saying? What are you trying to do to the most stable part of agriculture that is not asking for subsidies or assistance." These people are supplying the highest quality product we ever had in our society.

Ms Higginson: You have picked out one example, but there are other exporters that spoke at the House Committee as well. Their comment was that we need to look at how broad the scope of the next round of negotiations is going to be, because the markets they are looking at getting into, in terms of grains and oilseeds, are Japan or Asiatic or South America. Those countries are not looking at our supply-managed system. The U.S. is looking at it, but we already have access to the U.S. They are looking for a larger round that is going to include industrial goods.

Senator Whelan: I know the CFA is doing their very best. As I said to Michael Gifford, no farm organization and no political party of any description asked that concessions be made in Uruguay on dairy products, when they should have asked for the same thing the United States asked for their dairy product. We gave it away at the Uruguay Round. I am concerned about who is going to do the negotiating for us. We know who sat behind the Americans. The biggest food processors in the world sat behind them telling them what to say.

Senator Stratton: I would like to go into the reason why these subsidies are growing. Essentially, I would assume that, to a large degree, it is because of the recession or the fallout of the economies in the Far East. The fear is that we are now entering the longest boom in the history of the United States as far as an economic recovery is concerned.

In a series of articles, The Economist magazine forecast in 1996 that the Japanese banks were in trouble and there was going to be a real problem. Sure enough, a year later that occurred. According to The Economist, the United States are in a bubble economy, in other words in the final stages of a recovery. The likelihood is that that bubble is going to burst. When that happens, we are into a worldwide recession.

We are going into negotiations on the WTO one year from now, and I understand the forecasted time to completion is about three years. With that as a background, and the fact that you are now starting a negotiation with very low prices, I worry that, with this forecast and the events in Asia, why or how could the European Union or the United States give up on their subsidies? If this so-called bubble economy in the United States bursts and we do end up with a fairly severe recession, how can we expect them not to give up on their subsidies.

You know it is going to happen; I think we all do. The recognition of that fact has to prepare us for such an event. I believe The Economist is right. What is likely to occur and what do you recommend when it happens?

Ms Higginson: I guess our hope is that our negotiators are going to push to reduce export, the most trade distorting of the subsidies. We see export subsidies as being much worse, much more trade distorting than some of the other types of green box programs. Therefore, we need to target what we need reduced or eliminated in the next round.

If we were to go into a negotiation, and if your prediction were correct, you would see domestic support increase. We are already seeing support increase manifold in many of the big countries. All we can do is try to work with other countries that have smaller budgets; try to reduce the level of domestic support and spending; and target on the worst of the trade distorting subsidies that are out there, not depressing world prices and distorting trade to a lesser degree.

We would push as hard as we can the priorities we want to see as we go into the next round of negotiations and work with several of our allies.

We always hear about the European Union and the U.S., but there are actually 136 countries sitting at the table of negotiation. There are a number of developing countries, as well as the Cairns Group, and a number of other blocks that would also like to see domestic support and export subsidies reduced substantially. I think we can work with a number of allies in terms of pushing for that in the next round.

Senator Stratton: Marketing boards are a favourite topic here. The U.S. is pushing for access to our markets. They want to be able to export their products into our marketing board protected areas, and are going to use that as leverage during this upcoming round. Mr. Gifford said that is a domestic policy and not one that would come under the WTO. Nevertheless, the U.S. is going to push hard, because they want access to our markets. Do you not see us caving on that issue?

If we want to achieve what you have previously stated; if we are going into a round in the WTO where we want to diminish subsidies, particularly in a hard economic time, then would we not have to give in an area such as marketing boards?

Ms Rutherford: The Canadian system of orderly marketing, whether it is the Canadian Wheat Board or those products under supply management, is small potatoes in terms of the WTO. The U.S. is not the only other country at the table. There are other countries, including the U.S., which have orderly marketing systems. They are domestic decisions. We need to convince, from a domestic point of view, our government, and therefore the negotiators through the government's instructions to them, that the negotiations are not to impact.

In terms of the marketing boards, in terms of supply management, what we are looking at now essentially would be tariff reductions. We are not looking any longer at article 11, or anything like that, which we can give away. It is entirely a domestic decision as to which areas we are willing to accept tariff cuts in.

If we are willing to take those decisions domestically, then there really is not that much of an issue. The only country that has a problem with this is the U.S. Canada is not the only country that the U.S. is targeting. We firmly believe that it does not matter what we do, the U.S. will complain.

The Australians have completely altered the way their wheat board works. It is privatized. It has no government support to speak of. The only thing it has is a regulation, and the Americans are going to continue to challenge that as well. A few years ago at an International Federation of Agricultural Producers meeting in Washington, one of Mr. Scher's predecessors, was quite up front in saying he did not care whether it was legal or not, they did not like it. If it does not meet their vision of the world, they will continue to challenge it. That is simply a reality of going into the negotiations, and these negotiations will not come down to Canada and the U.S. fighting it out at the WTO table.

Senator Stratton: I am not going to disagree with you on that issue. I think there will be many nations on our side. It is just that we do sleep next to the elephant, and I do not want him to roll over too hard.

The Chairman: I was a silent observer at the table with Mr. Dunkel and Michael Wilson when our government defended chapter eleven. His statement was this: "You Canadians, on the one hand, want a protected market; on the other hand, you want open trade, world trade and liberalized trade." That is the view of much of the world.

Ms Rutherford: It is a very different situation now. We have set tariffs on all of the protections. Essentially, it is a decision about what the level of the tariffs is. The U.S. has a number of commodities on which they maintain high tariffs. There are also other countries that also have a number of commodities on which they maintain high tariffs.

We are no longer dealing with a situation where we are trying to keep an exceptional rule to protect certain commodities. Whether that is a good thing or bad thing is up to everyone's individual discretion. The situation we are going into is quite different now. It has become quite definitely a domestic issue, how we decide we are going to go forward. In terms of trading one commodity against another, I am not trying to denigrate Mr. Sigal, but I think the view that he has put forward is somewhat simplistic.

The Chairman: I would agree that it is about the only thing we have left.

Senator Hays: Briefly, on the supply management issue, you mentioned sugar, cotton, tobacco, peanuts, and so on, which are commodities that have comparable support to our supply-managed commodities.

I have a supplementary question following from Senator Stratton's remark. Would the U.S. bilaterally, voluntarily walk away from those on the principle that I believe motivates the readers of The Economist generally, and say, "We will stop doing this and we expect you to do the same?" Is that a likely outcome?

Senator Fairbairn: Especially on sugar?

Ms Higginson: The U.S. has no plans to discontinue supporting and protecting those industries. The U.S. President passed a bill recently where every pack of cigarettes sold in the U.S. must contain 50 per cent U.S. tobacco. So when you talk about a country trying to protect its domestic interests, those commodities certainly have strong lobbies that are listened to. They are not even worried heading into the next round of negotiations, because they have the support of the majority of their Congress.

Senator Hays: I thank you for helping us to better understand this really complex and difficult subject. Are we as well- positioned today as we could be heading into this negotiation? Some of the things you have said prompt me to ask if we really have done as much as we can to implement the deal we thought we made.

You used pork trading into Europe as an example. You state that trading agencies are another. One would be offensive, the other defensive in terms of an action. The other example that occurs to me is the use of growth hormone in beef production, and the WTO panel's decision that that was not a phytosanitary, but rather a trade measure, and that they should change their practice in terms of importing North American beef accordingly.

Correct me if I misunderstand the panel's decision, but as I understand it, a country can accept or not accept a panel's decision. Although not accepting it may lead to other trade action. In any event, have we done all that we can? We head into this negotiation basically trying to achieve what we thought we had.

Ms Rutherford: We are not alone though.

Senator Hays: We are not alone. Have we done everything we can to draw attention to the fact that some countries are not abiding by what they led us to believe were the rules of the agreement?

I do not want to cover specific programs so much as to make this an abstract issue. You talked about "disguised" export subsidies, and how you can have a green payment that is really a disguised red payment. If acreage is the example, and the Canadian Wheat Board says volumes of wheat have increased in a particular environment, you can relate that to additional green payments when you negotiated a category of red payments. Now you might lose at the panel. Have we done ourselves justice by complaining about that, and should we not now try to make an example of it?

If pork is not being allowed into the European Community because it is being categorized with other red meats, then the agreement that we intended to sign is not being observed and is flawed. Should we not try to draw attention to that by using the available rules-based dispute settlement remedies? Perhaps we would lose, but we could then head into a negotiation saying we went to the panel because what was called green was not really green. Why was it not green? Well, here are the numbers. We made this agreement because we wanted a more level playing field on red meats, on cereals, and we did not get it.

We did not get it because these payments were made, and the persons making the payments, or in fact subsidizing, are saying it is okay because it is in a particular category -- blue, green, whatever. There is a lot of rhetoric on the WTO, but it has not achieved its objectives. You suggest that a disguised program is no different from an undisguised one.

Senator Stratton: That was a wonderful speech, by the way.

Ms Higginson: I agree that the text of the agreement is being challenged and clarified through the dispute settlement and panel process. It is interesting to see how it is being interpreted by the panels.

When you negotiate and write the text, you believe it has one interpretation, but another country may see a slightly different interpretation. It is very useful to have these precedents set and to see what the panel's interpretation of a specific line or a specific section of the agreement will be.

There have been many panels over the last few years, and the process uses a lot of time and a lot of resources, including money.

I do not disagree with you that it is very important to look closely at these panels and make sure that we fully understand what has been agreed to.

That work is definitely not done as we head into the next round. It is an evolving process, and everyone is looking closely at what was agreed to last time and making sure that we do correct any mistakes. I mentioned a few that have already been pointed out, and I am sure there are more that have not been raised yet. Our negotiating team has a very big job ahead of it.

The WTO Committee on Agriculture meets every two or three months and reviews each country's notifications in terms of market access, domestic support, and export subsidies. There is a great deal of discussion on those notifications of green box programs, on blue, on amber programs, and many questions raised on whether a program described as green really is.

Canadian negotiators have raised a number of questions on some of the programs the U.S. has notified as green. The CFA has certainly promoted, for the next round of negotiations, the idea of some sort of body or panel that you could consult before you develop a program to make sure that it will be considered green. Therefore you have not gone through the whole implementation process and notified the program that has already been in place for a year or two as green, only to have a panel come forward and decide that it is not green. Similarly, it would avoid another country putting in a program that they considered green, it has been in place for two years, only to have it decided that it is really an amber program and should be reduced.

Senator Spivak: Senator Stratton mentioned the European Union and subsidies in case of recession. The European Union is looking to get the eastern European countries included, but from what I have read, they could never afford then to have the same subsidies. Can you comment on that?

They are changing somewhat from export subsidies to domestic price supports, is that not correct?

When the transportation subsidy was eliminated in this country, it was not just for budgetary reasons. It was also felt that it discouraged value-added activity because raw grain was being shipped out. I do not think that what is being suggested now for a domestic program is any different in budgetary terms from the transport subsidy. Do you think it is better, and do we need both? Do we need domestic price supports?

There is a really strange situation now in Manitoba where it does not pay to ship anything because it is so expensive. What is your view on dealing with that, both domestically and in the European Union?

Ms Rutherford: The Europeans feel in many respects obligated to take on some of those responsibilities. They cannot afford to provide those same subsidies, and they do have some intention of trying to balance any expenditures made in that direction with their commitments under the WTO. That is something that must be seriously looked at and worked out because it is a situation that no one is terribly comfortable with. I do not think they are very clear about how they will work it out over the next little while.

Many of those countries are in very difficult situations. During the last round we had some visitors from the Lithuanian government who were asking questions about the Canadian position at the WTO and what we planned on doing. They admitted that they barely had a government, so they had no programs of any sort. They had absolutely nothing to even notify on, so how do you calculate a reduction from nothing? Consequently, anything they did put in was immediately regarded as a 100 per cent increase.

There are some very difficult situations that must be worked through in terms of eastern Europe, both within the specific countries and the WTO, as well as within the potential European Union expansion. It is an issue that every country is aware of, and every country realizes it must be dealt with. Simply saying you cannot let them in, or you cannot let them do that, will not work.

Russia certainly has not lived up to its agricultural potential, but other countries do have real opportunities, and not including their potential volumes within the rules of the game is not a good strategy for Canada, or for any other country. It is an issue that every country will be paying very close attention to.

In terms of how Canada distributes its program dollars, a transportation-type subsidy, and some kind of income support, which is what we are looking at, are quite different types of subsidies, as you pointed out.

The elimination of the WGTA came about primarily within the circumstances of a financial crisis, but certainly there were strong arguments for elimination, or at least alteration, in order to encourage value-added processing. The situation in Manitoba is not very well understood even in the rest of the Prairies, and people tend to think that Manitobans are just whining about it. However, when you look at the numbers, you realize how difficult it is.

It is fairly analogous to what we are looking at within the actual application of the WTO agreement, where you can develop something theoretically, write it down on paper, and decide it will work. Then you realize you cannot ship anything out of Manitoba because it does not pay.

So what can you do? A province like Manitoba is forced to look at really significant changes to the way its industry is structured. Some interesting situations developed in terms of massive increases in hog production, for example, which means that Manitoba is taking one of the biggest hits right now. There are other, slightly extraneous pieces to that puzzle that cannot be ignored, and are a lot more political than economic.

As with the WTO, you can indeed come up with rules, but how they are interpreted and how they are applied and how they are put into place practically can vary. We believe that the kind of programming we are looking at under the present farm income situation is better both in terms of the WTO rules, in terms of any NAFTA rules, but also in terms of support. It is not only non-trade distorting, it does not distort between or among commodities. Nor does it distort between or among provinces. That is a really important point, because again we are talking about a situation analogous to that of the WTO.

Ten years ago in this country we had provinces buying industries, buying sectors of the agriculture industry, but that is not a situation we want to go back to. It is not useful or productive. We had our own massive subsidy war within Canada, and it is not the kind of thing we want to see happen again.

A program that provides support on an equivalent, farmer-by-farmer basis, as opposed to a province-by-province or commodity-to-commodity basis, not only works from a trade point of view, in the long run it is a fairer system and significantly less distorting from an industry perspective. Although I realize some people have difficulty accepting that.

Senator Spivak: Farmers of specialty crops and canola seem to be doing okay. Why is durum wheat not a specialty crop, and is there any other place that grows the same kind of high quality durum wheat as Canada?

Ms Rutherford: No country grows better durum than Canada, but there are other countries in the business. It depends on the specifications. Some of the importing countries to which we have traditionally sold have perhaps altered their specification. That is not to say they are not looking for the highest quality, but they have altered what they are willing to pay.

Technology changes, and there are different ways of dealing with things. You can use different qualities of durum wheat for different purposes. We are selling durum wheat into an export market, so we are subject to what our importers are actually looking for. They may decide that they are not willing to pay the price this time, but that does not mean they will not be looking for it next year.

Canada has a very small portion of the grain trade, and our very high quality grain can be mixed with somebody else's lesser quality durum wheat to produce a fairly decent product. That means the quantities they buy from us may indeed be fairly small. It is a very complicated game in many respects.

Senator Spivak: Some Scandinavian countries, for example, have developed very successful markets based on quality. Is it to some degree a marketing problem on our part?

Ms Rutherford: No, I do not think it is a marketing problem, rather, it is a matter of the market shifting.

The Chairman: Durum wheat has been a specialty crop. It was $6 a bushel last year, and now it has dropped to $2 because farmers have switched over to it. The same thing can happen with canola. If everybody starts to grow canola, the price will drop right out.

Senator Fairbairn: My questions are process questions. You noted in your presentation the difficulty you have in finding a consensus within a broad organization such as yours and the many differing points of view. That is exactly the same the difficulty the federal government will have in trying to find the best possible consensus heading into these negotiations.

There is general agreement that one of the most important things is for Canada to have everyone in the same room, presenting a very strong position for this country.

You have worked within your own organization, with the federal government, and other governments. Do you believe that a sufficient amount of time and emphasis is being spent at this point by government to achieve that consensus among Canadian groups, so that we will have a cohesive team heading into these negotiations?

Ms Rutherford: There have been a number of conferences co-sponsored by Agriculture Canada across the country this fall and there are a few to come in the wintertime. We understand that there is to be a major conference on trade in April.

The goal of those exercises has been to allow people to develop their own thoughts and positions as opposed to developing any comprehensive policy. We have made it clear to Agriculture Canada that we do not believe that at a conference with 700 people, the skies will open and there will be some huge revelation and everyone will fall to their knees with one position. At best, hopefully they will be able to listen to each other's points of view, because that is very important.

Work has already begun on the development of a cohesive position. We know that in our trade committee process, both DEFAIT and Agriculture Canada have been very forthcoming with their time and energy, helping us work through some issues and listening to us. They will continue to do that.

There will continue to be ongoing lobbying from individual groups, but the vast majority obviously desires to come to some common opinion. I am not trying to prejudge annual CFA meeting delegates, but I cannot see them turning down the port council, as a former member, and Sask Pool and Agricorp will be members of CFA.

All three of those organizations are members of the Export Alliance. They are all very clear about their commitment to a strong agreement that supports Canadian agriculture. Clearly, they are looking for a strong agreement that supports their particular sectors, but also one that supports the entire industry. One thing the industry has learned over the last number of years is that no commodity stands alone. There are very few people who have only one. Most have two or three, depending on whether they want to include their apple orchard with a couple of trees behind the barn.

It can be more than that. They realize very clearly that they are interdependent, that having enough farmers out there to maintain the machinery dealerships, the fertilizer dealers, the hardware store, the school, the local doctors, let alone the hospital, is crucially important.

People are looking for a supportive deal, and it has been an interesting process for us to go through. It is not a secret that CFA has led the way on the income disaster program, having all of the partners at the table and having no one say no. That has been really interesting and important for how we move ahead on the trade agreement. It is clear that even if your specific commodity is not currently in deep trouble, you understand that the guy's next door may be, and you need him or her there to ensure that you can continue to function properly.

It has been an eye-opening experience to everyone because we have not had that opportunity before.

Senator Fairbairn: It sounds very encouraging as a method of operation.

Ms Rutherford: This has been a really good fall, although I was told off the other day for having said something similar. The income situation out there is really bad, and farmers coming together to try to address it has been really critical.

Senator Fairbairn: In your advice on the development of the Canadian position, you discussed the need for us and other countries to try to correct things that did not quite work out the first time around.

The other point is that it should not be a totally cast-in-stone position heading in, but that it should be developed incrementally as the discussions go on in order to see how other countries are playing certain issues.

How difficult is it in those negotiations to be incremental? When gears shift and things move quickly, do you not have a pretty good idea of where you are heading? When these international negotiations become hot and heavy, does that permit a more desirable but slightly slower pace on the part of a country? Does there come a point where it is difficult to keep up and adjust quickly?

It is one thing to correct problems, but it is another thing to be sensible and cautious. Is a lot of effort being put into anticipating what other countries will likely do? The Blair House episode should warn us. This time around, will the smart negotiator be the one who has taken a lot of time to try to anticipate the angles and the surprises coming from other countries?

Ms Rutherford: There is a difference between deciding on one's goals and the way of achieving them. We must have very clear goals in heading into the negotiations, but how things actually unfold behind the closed doors is a different issue. That is where we must have flexibility. Perhaps I did not make myself clear, but we are not proposing that the Canadian government be flexible in its overall goals. That is not to say that if we do come down to a crunch, because there are always bolts out of the blue, that we should throw up our hands and walk away. How we achieve those goals in relation to the positions of other countries is very critical and there must be some flexibility there.

As to your second point, I believe this time, as last time, the negotiators for Canada are looking very closely at what is happening in other countries, such as at Geneva, mentioned earlier, at the Agriculture Committee, and other committees. They are watching what is happening at panels, within the committees, and the kind of submissions that are being made.

There are whole committees spending their time studying the application of the rules and trying to figure out if the outcomes were as expected, because nobody could be sure. We have a pretty good handle on that. Canada had last time, and has this time, some excellent negotiators who are looking very carefully at what is coming down the line. They are trying to weigh the options and develop negotiating strategies to deal with some of the issues.

Ms Higginson: We want the Canadian government's position heading into the next round to have flexibility as well as details. We are seeing the text of the agreement being defined through a number of upcoming panel rulings, and there will be more panels that will rule on the interpretation of the current text as we approach these negotiations. Certainly those decisions may have an effect on how we approach certain details in our negotiating position.

The scope of the agreement has not yet been decided, and if industrial goods are included as well as agriculture, then that will change the focus somewhat. Currently, there is not only the WTO Committee on Agriculture, but also a subcommittee on analysis and information exchange that is studying approximately 40 different informal papers from countries putting forward ideas on a number of issues heading into the next round.

One idea being discussed is multi-functionality, a key word being put forward by the European Union. There has been a lot of discussion as to what that means, where it fits, and how it is defined. As those discussions on many aspects take place, and as any consensus builds, that will affect the details of much of our negotiating position. We do not expect these details to be agreed to in these committees, but maybe in the next few months, and certainly throughout the course of the negotiations, there must be some agreement on this. There is a need to retain some flexibility so that we can adjust our position as these details are worked out and defined.

Senator Fairbairn: Often when we have these discussions around this table and with all sorts of groups, and we start talking about the European Union and the United States, the latter becomes certainly an opponent, and as conversations heat up, perhaps a villain. However, the United States is our largest trading partner, our closest neighbour, and probably has strong views about the European Union.

How can we work with the United States instead of heading in with our fists up? How can we try to establish in advance some kind of mutual-interest working relationship, because in the end, the whole world must live with them, but we really must live with them.

Ms Higginson: We often portray the United States as maybe a villain in our dealings with them, but we do have some common interests. There are some areas where we can work with them, as we can with a number of other countries.

We certainly have some common interests with members of the Cairns Group and some that are separate. There are a number of countries that we can partner with on some issues, and with others we will differ. That is how we need to approach the next round of negotiations.

We are with the Canadian Federation of Agriculture and we have been meeting with the American Farm Bureau Federation. There have been a number of discussions with the United States to try to help them get up to speed on even understanding what Canadian agriculture is. We are finding that there is a real lack of knowledge in a lot of the U.S. agriculture community about what a marketing board is or what the Wheat Board does. They have an idea in their minds as to what the situation is, and we are trying to work with them and educate a number of people on how Canadian agriculture really operates. We have been making an effort to work with the United States where we can find commonalities.

The Chairman: Eastern Saskatchewan is in exactly the same position on the freight rate as Manitoba. A comparison was done between eastern and western Saskatchewan on the same assessment of land. In the west it was selling for 14 or 15 times the assessment, while towards the Manitoba border it was down as low as nine or 10 times. That is the difference.

The freight rates often work out to at least a dollar a bushel, which is a severe situation. Currently in Saskatchewan and Manitoba there are large semi-trailer trucks heading west as fast as they can, and the farmers are trying to find the cheapest freight rates to move into a better market. It is a very serious problem.

I attended the Regina Agribition and I talked to farmers and small implement manufacturers. One manufacturer told me that in the Saskatoon area, where there are a number of small manufacturers, 2,000 workers have been laid off. That affects 2,000 families in a small city like Saskatoon, and the impact is tremendous. It is not only affecting farmers, but the whole community.

[Translation]

Senator Robichaud: We greatly appreciate your presence and your presentation. In your presentation, you commented that the Canadians were perhaps a bit holier than thou in our attitude during the last negotiations, and suggest we might be a little less so in the next round.

It is my impression that we are leaving it up to the Americans to define virtue. I connect this with the comments made by Mrs. Higginson, who said that we work with them, listen to their criticisms of our system or of the Canadian Wheat Board.

We explain to them what we are doing and have no problem doing so.

Ought we not to accept a kind of "tough love" attitude, admit the Americans are not that bad, and let people know what the situation is? I may have the wrong impression, but I would like you to clarify this situation.

[English]

Ms Rutherford: It is more difficult in the case of the WTO because it is not so close. However, there was a press announcement from Washington on Tuesday. At Mr. Vanclief's meetings there, he simply stated that the Americans will not get away with the kinds of things they have been doing in relation to Canadian pork and grain.

As a result, we will now have complete chaos at the border, starting on the weekend, and there is nothing we can do about it. That is a very difficult situation for Canada to be in.

Our political systems and the way decisions are carried out are very different, and sometimes that really does put us between a rock and a hard place.

We have taken a harder line with the U.S. in the last year, as it is necessary that we do not simply roll over. Maybe in the past we have rolled over on to our side, maybe not the whole way, but we are not prepared to do that any more.

One problem for Canada is that the States is a significant market, and it is not realistic for us to simply say we do not need you any more. We must be cautious about how we engage in "tough love."

We are not alone in trying to deal with the WTO and the U.S. The Cairns Group was created to try to deal with the European Union on the one side, the U.S. on the other, and it has provided some strength in trying to address some issues.

While it is sometimes hard to live with, most Canadians are quite proud of the fact that Canada tries hard to be as clean and upstanding as possible, not only in its trade negotiations, but in other areas as well. At the same time, we do not like to be snookered, and there is a strong feeling that maybe we have been taken advantage of.

We do not believe that we negotiated anything away that was not necessary to complete a deal the last time around. However, our government could perhaps have made different decisions, although they were trying to deal with the deficit problem.

In February, prior to our annual meeting, and I think again at the meeting in April, we will be looking at how Canada can develop future programming that fits into the green box, but that is delivered somewhat differently from previous programs. For example, the farm income situation we currently find ourselves in is an interesting one.

We do not have a program that can deliver necessary funds to farmers, whereas the U.S. has programs that can that are all within the green box. It is the way they were developed in the first place.

If you look at the American programs, a huge portion of that $6 billion is not there for income support, it is for rural development and environmental programs. We started keeping track in September, and there was a press release almost every two days out of Washington about some new program out of the White House for rural America that began to build up the $6 billion. They had an election in November; we did not. This made it a little more difficult perhaps.

We too have an opportunity and an obligation, because it is not just an agricultural issue. It is broader than that. How will we be able to support our industry, but also provide assistance in achieving some of the goals that we must achieve? For example, under the greenhouse gas agreements, we must be able to develop assistance programs that cannot be challenged.

We cannot change the way the American system works, or their laws. All they have to do is challenge us, and it does not even have to be a good case. It does not have to be based on a lot of fact, but it immediately puts our industry into a tailspin and costs people lots of money, so we must be very careful about how we do these things.

Senator Whelan: I have in front of me a copy of the Windsor Star. It states that "Heinz Competitor May Get Break." We were talking about these panels. The H.J. Heinz Company appealed against the Gerber Products Company, not for selling into Canada, but for selling into Canada for less than they were selling in their own country. So they appealed and a 60 per cent tariff was placed on the cost of the product. Then Gerber appealed again, and the panel reversed its decision. It lowered the tariff to about half of what it originally put on.

Consumers came forward and said that Heinz would be taking advantage of them. However, the whole thing seems unfair. Do you follow that type of action in the agricultural community?

Ms Higginson: There have been several cases, and obviously we cannot follow them all. In terms of dumping and determining injury, certainly our sugar industry has gone through that, with products being dumped into Canada. Trade remedies are important for Canadian agriculture and we need to maintain the ability to protect our domestic markets when products are dumped at below cost into those markets.

Certainly countervail is a big issue for beef right now, and has been for pork over the last five to 10 years. We did manage to get some agreement in the last round that green programs were non-countervailable. Unfortunately, we only have two programs in the green box, so we cannot actually take advantage of the provision that we negotiated. That is something we are hoping to do with the disaster relief program, is to put a program in the green box that is non-countervailable, so that we do not have this problem with the U.S. imposing duties on our products when we export them.

Senator Whelan: If a company is selling into Canada at a lower price than to its own consumers in the United States, that is a blatant breaking of the agreement. That is blatant dumping. One U.S. trade official said the other day, "We must have more free trade because we have surplus products we must get rid of." Why do they produce surplus products that may destroy another country's production?

Some people have the idea Americans cannot export an egg or a chicken into Canada, but they have the same percentage of the market they had when the supply management was put into effect, and if it increases, they increase proportionately the 1 per cent. That is never very clearly explained and people think it is a complete barrier. Yet they do not spend one penny towards the advertising of that product. They do not make sure the science, the hygiene, the nutrition we use in our production is superior to theirs, and they bring their product in here and they sell it at the same price, so they have an advantage.

So I am concerned when I see this guy who runs a desk. He is a former country employee, and his thoughts must have been the same when he was an Agriculture Canada employee, giving away supply management. Who have we got in there negotiating for us who we can trust?

I do not trust Mike Gifford and I told him that the other day. I dealt with him for years and I knew his stand on supply management and marketing. When Gerry Shannon was representing Finance, he never went to a Canadian agriculture export corporation meeting. Yet we send those people over to do the negotiating for us. Where are they having the meetings, in Geneva?

Ms Higginson: Yes, the committees are meeting in Geneva.

Senator Whelan: Who are the committees?

Ms Higginson: WTO Committee on Agriculture has representatives from Agriculture Canada, and the others from Foreign Affairs, and Finance and Revenue, depending on which committee it is.

Senator Whelan: How many of them have agriculture knowledge?

Ms Higginson: We work very hard to make sure agriculture interests are represented. Agriculture Canada is on the one directly related to agriculture, and we bring people into our trade committee to make sure what they are doing in other committees is taking agriculture into account. We work very diligently and spend a lot of time trying to make sure these people actually understand agriculture.

Senator Whelan: I have not done a recent check, but in the department, over half of the directors and half the assistant deputies would not know a cow from a sow. They have no agriculture background at all, and they are from Finance or Treasury Board or Foreign Affairs. They are making the decisions.

Ms Rutherford: We see that as part of our job, to try to ensure that they have the information and the knowledge to take forward, and that we continue to create a situation where we are open to having them come and ask all the questions that they may not be comfortable asking others, so that they have the right kind of information.

I know that there has been some concern expressed about the way negotiations have been carried on in the past. However, it is fair to say that we are confident that those who are carrying out the negotiations are frankly taking the position of the government to the table. We have never been able to identify a situation where that has not been the case.

Ms Higginson: CFA has always very strongly supported the use of anti-dumping provisions. That was a big issue when Canada negotiated an agreement with Chile, and we strongly supported the retention of Canada's ability to use anti-dumping provisions. Also, the Special Import Measures Act is being discussed in the House. We are certainly in favour of keeping anti-dumping provisions so that our producers have some available trade remedy measures to fight against products coming into our markets at lower prices.

Senator Whelan: The headline of an editorial that appeared in The Ottawa Citizen yesterday states "Subsidized Squeals." They immediately give the impression that farm people lobby better, have a better propaganda system, and are better treated than anybody else in our society, which I know is not true.

Ms Rutherford: I think we lobby very well. I take exception to that.

Senator Whelan: I mean lobbying for subsidies. There is a lot more you could do on lobbying. For instance, you could have hired me for eight years at a reasonable rate. I know some of the lobbyists that were working for agriculture.

I am really offended when you keep using that figure of 136 countries that are telling us what to do, because some of them could not send an egg to market. They could not send a chicken, and we keep quoting that. In the United States of America, for instance, Ohio has a gross domestic product in agriculture that is as large as all of Canada's. California would be the fourth largest agriculture producer in the world if it were a country.

We quote 136 countries as having told us we cannot have supply management, we must get rid of it. I went to a lot of those world meetings. Some at the UN wanted to declare war, and they could not send a bicycle to war.

What is a subsidy? Is it research? Is transportation a subsidy? In Western Canada there is a tremendous difference in the ability to make it to market by roads. Certain roads in Alberta you can run on all year, but in Saskatchewan you have limitations on roads. Manitoba also has limitations on roads because they do not have the economic resources. Alberta is into research and subsidies. They have 80 per cent of the cow/calf operations because they subsidized their beef producers.

We have a terrible situation with market share right in our own country. The market is more available to them, and I know that CFA's resources are limited. I would love to be able to provide a couple of million dollars, hire more researchers, buy more computers to do the work. What is a subsidy again?

On the issue of trade officials, we had one or two persons, for instance, in Mexico trying to sell agriculture products. The United States had 400 people. Now if we had a tenth of that, we should have at least 40 people in Mexico selling agriculture projects. The United States does not call that a subsidy. Those are Foreign Affairs officials, and they are knocking on the doors. They are doing all that kind of thing.

When we started the Canadian agriculture export corporation, the United States said it was a wonderful idea. Then the new government took over and banned it within three months.

They spent the same amount of money within the Department of Agriculture, or more, using their own bureaucrats within Agriculture Canada, to do that. Have you done a study on subsidies?

Ms Rutherford: Our recent work has been to compare levels of subsidies and which boxes they fit into. In terms of the WTO, it is perhaps not so much a matter of the definition of a subsidy, but rather which box it fits into. Certainly, government funds going into research, into export development, is acceptable. Research and development, environmental spending, are also acceptable, but we just do not currently happen to have many programs that deal with those issues. That is where we are looking at trying to develop any new spending, of which we gather there may be some.

If we are to develop any new programs, they must be developed in such a way that they will be green, and not only because 136 other countries are telling us that, but because that is the way to make the system work.

It is just like Canada, where we have 10 provinces, and at some point we all must agree so we can all move ahead. There is no doubt that Alberta has more money than other provinces, but that is the kind of situation that we are trying to avoid with our proposed farm income program, so we are not setting up a situation where provinces can actually buy sectors or support them unnecessarily. However, we will never end up with a situation where every province is equal to every other.

Senator Whelan: In the United States, agriculture is totally controlled by the federal government under their constitution, and the individual states are nothing more than extension services. We do not have that here, and so you have the provinces running around helter-skelter.

We have done a check with our conservative resources on commodity prices and what consumers pay. The most blatant robbery today is in the pork industry, between what the farmers receive and what the consumer is paying for that product on the shelf. There is hardly a noticeable reduction at all, and the same situation exists in cereals and cooking oils. Have you done any study on this at all?

Ms Rutherford: We have not done any study, but we have been talking to some people in a preliminary way to try to find out who is making the money. So far, we cannot find anyone who will admit that they are making money out of this.

Without looking at the packer's or the retailer's books, it will be difficult to try to determine who has paid what for what and what kind of a margin they are making. The only thing we are sure of is that farmers are not receiving anything for their pork, and the consumers are paying. They were paying for it six months or a year ago, so someone in the middle is making the money.

Mr. Villeneuve from Ontario has made an issue of this, and considering the number of packers in that province, we hope that he has the opportunity to continue. It is something we are working on and that we want to take to our board.

Senator Whelan: If they were making money before, they must be making a bundle now. It is a little bit disgraceful, the profit they must be making. What they are doing at the present time for their pork is a big disgrace. It should be good for their shareholders, for the packing companies, but at the expense of the farmers.

Senator Hays: Four years after the Uruguay Round, would the stakeholders, particularly producer groups, agree today on an opening position that simply achieving the objectives of that round would be an adequate outcome of the next one?

Ms Rutherford: That would be a really bottom line. There are some other issues that have risen in prominence and importance, like sanitary issues, for example.

Senator Hays: On that issue, did we not have success with the use of hormones in beef production?

Ms Rutherford: Yes, but again, it is a matter of application.

Ms Higginson: Beef still is not moving into Europe. We have had the panel, and we have had the appellate body rule. Now we are waiting 18 months for them to do another study. We need to look at what was agreed to and we need to look at how the enforcement will work on some of these issues.

Senator Hays: Do you think it is a realistic objective for the next round to have countries set aside sovereign rights not to accept the outcome? Is that something we might realistically try to achieve?

Even if we took the hormones out, we could still not move the beef.

Ms Rutherford: We are not looking for a country to set aside its sovereign right, but we are looking for ways of applying and enforcing the rules that are real. One challenge facing the WTO is the same as we have in Canada presently, in terms of finding that pivotal point where science and the rest of life actually come together and everybody can move ahead, if not comfortably, at least with some level of assurance. That is essentially where we are.

What they have done in Europe with the hormone issue is interesting. It is no longer a trade issue. It was a trade issue, but then they moved it to a consumer issue, and no one is trying to say that they do not have the right to do that. What Canada and other countries must determine, because it will affect us all, is what exactly are the rules for how you move those things around. How do you determine what is actually a health issue?

The whole issue of non-tariff trade barriers will be a growth industry. That will come even after the end of this next round, and it will be huge. Anybody who is seriously looking for something to consult on, there will be all kinds of countries looking for help on how to develop non-tariff trade barriers. There may be second or third careers out there for many of us.

Senator Fairbairn: I would be remiss if I did not encourage you in your education efforts with the Americans to make sure that you have the sugar industry, the very viable beef producers in southern Alberta, the other companies in Canada, constantly battling for some element of a fair chance. Please keep them on your list of things to educate Americans about, push Canadians about, including our government, and never let up.

Ms Rutherford: The sugar producers are members of CFA and we work very hard for them. We have some questions and answers concerning the design of the proposed farm income program. I thought it might be of some interest to some people.

The Chairman: In closing, I will quote from The Ottawa Citizen: "As a medium power caught between two economic giants, the only sane course for Canada is to rally an international attack on agricultural subsidy."

That is quite a positive statement on what Canadian farmers are facing and the problems of the international crisis before us. Thank you for appearing before us today.

The committee adjourned.