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Proceedings of the Standing Senate Committee on 
Foreign Affairs

Issue 8 - Evidence

WINNIPEG, Friday, February 21, 2003

The Standing Senate Committee on Foreign Affairs met this day at 9:04 a.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.

Senator Peter A. Stollery (Chairman) in the Chair.


The Chairman: Honourable senators, on behalf of the committee, let me welcome you and say how delighted we are to be here in Winnipeg, and to have the opportunity to hear your views on some of the international trade challenges that confront us today.

Our mandate is to examine and report on the Canada-United States Free Trade Agreement of 1988, the North American Free Trade Agreement of 1992, secure access for Canadian goods and services to the United States and Mexico, and the development of effective dispute settlement mechanisms. We are expected to present our final report no later than December of this year.

Let me say from the outset that we find ourselves in very difficult circumstances as they relate to our trade relations with the United States. Here is the reality of the situation from a national perspective: 86 or 87 per cent of our international trade moves in a southerly direction. Trade with the United States represents about 35 per cent of our gross domestic product. The figures for Saskatchewan and Manitoba differ quite dramatically. Saskatchewan is the province least dependent on exports to the United States at 58 per cent, and 40 per cent of that is fossil fuel products, but there has also been a growing market for agricultural products, electrical conductors, and fibre optic cables.

Manitoba is more in line with the rest of the country: 83 per cent of all its export products head south. That is truck traffic mostly, and it depends on a smooth border crossing process.

How long will that last? Understandably, the United States is extremely security conscious. They are on a war footing, and any new security measures that slow the movement of goods across our border will have a serious economic impact.

We have been relying too heavily on one customer, and that customer holds us to ransom. The United States holds most of the cards. Look what has happened with softwood lumber. A once-vibrant industry has been crippled by punishing tariffs. I would like to just add something that we have learned over the last two weeks; that the legal bills alone in the softwood lumber industry, since the 1980s, have been an estimated $800 million.

The American Farm Lobby now has grain in its sights, so Western grain farmers are at risk, and our information at this point is that already the legal bills have been about $5 million. While it is true that we have a pretty good oil and gas hand, the United States holds most of the aces.

We can try to have the free trade agreement, the NAFTA, reopened. We can try and reach a more equitable dispute resolution mechanism. We are in the process of going to the WTO on some of these issues. However, should we not be looking at other markets and broadening our customer base so that we, at least, have some leverage?

Again, I would like to point out something that we learned in Alberta. The cattle industry has a goal of reducing its dependency on the United States market, I believe in about a year or two, to 50 per cent of their exports. That is their approach to this problem.

Senator Stratton: From where, Mr. Chairman? Where is it now, down to 50?

The Chairman: I cannot tell you at the moment. I do not remember, but I know that that is their goal. They are doing more and more business with Japan and China, and this is a goal of the Cattleman's Association, from whom we heard yesterday.

The bottom line is that we are here to listen and to learn. We have learned a tremendous amount since we started in Vancouver this week. That, once again, only points out how important it is for our Senate committees to get out across the country.

Our first witnesses are from the Canadian Wheat Board. Please proceed.

Mr. Ian McCreary, Canadian Wheat Board: Mr. Chairman, thank you for this opportunity to have the Canadian Wheat Board appear before the Standing Senate Committee on Foreign Affairs. I am sure the nature of the world today means that the Foreign Affairs Committee is a very busy committee with a full agenda, and we do appreciate your taking the opportunity to hear from us in the West.

May I first apologize for the absence of our chairman, Mr. Ritter, who has just returned from Australia. We had been attempting to set up some meetings in Ottawa. He was called to Ottawa late yesterday, and I agreed to take his place here this morning. I farm in the next district over from him, and I am a member of the Canadian Wheat Board's Trade Committee.

As indicated in your mandate, our presentation today will focus on our relations within the North American market and some of the concerns and suggestions that we have on that front.

First, by way of background, I would like to say that Western Canadian farmers, working through our board, market wheat and barley to customers in Canada and more than 70 countries around the world on behalf of approximately 80,000 farmers in Western Canada. Our sales are approximately $4 billion, when you consider that marketing program across the 70 nations.

Since the Canadian Wheat Board was turned over to farmer control in 1999, the Canadian Wheat Board has been governed by an elected board of directors, of which ten are elected farmers and four directors are appointed by the Federal government. The Canadian Wheat Board CEO also sits on the board.

I farm in central Saskatchewan, between Saskatoon and Regina, with my wife, Mary, and our two small boys. We have a mixed farm, both a grain and a beef operation.

The mission that we as a board have set for the Canadian Wheat Board is to maximize returns to Western Canadian farmers through marketing quality grain and services to our customers around the world. The Canadian Wheat Board, for the record, neither provides nor receives subsidies. Wheat and barley are marketed based entirely on commercial practices and all of the money going to farmers comes from the marketplace. Also, all revenues that we do take, less any administrative costs, are returned to farmers — and that last, particularly in the context with the U.S., it seems to me to need to be reiterated often.

Backing briefly away — and it puts our U.S. relations into a context that defines the frustration of Western farmers — I just came out of a wheat producers meeting. There is no level playing field among farmers in Canada and the United States and Mexico, due to the very different approaches taken by their public sectors and their support for producers.

Canadian wheat meets significant, unfair competition both within the U.S. and abroad due to the unfair, trade- distorting practices of the United States in the use of export credits and food aid. On the export side, agricultural subsidies, especially the huge program payments by the United States and the European Union, cause the most damage to other farmers who must compete with such subsidies. It is estimated that the subsidies in foreign countries have cost Western Canadian farmers $1.3 billion annually.

To illustrate the magnitude of these subsidies as calculated by the OECD, the Organization for Economic Cooperation and Development, in the U.S. and in the European Union, the subsidies are $108 per metric ton and $130 per metric ton respectively, compared to $31 for Canada: more than three or four times the level of public support. These extremely high levels of farm support in the U.S. provide incentive for uneconomic investment that ultimately leads to over-production and depressed world prices. Annual spending in the U.S. for the current farm bill is expected to be approximately $17 billion. This farm bill conflicts with the U.S. WTO proposals aimed at trade liberalization, and demonstrate that the U.S. will not be able to subordinate their domestic political pressures to their proclaimed international trade commitments.

The domestic political clout of U.S. farm interests is a fundamental threat to securing access to the U.S. market for any Canadian products competing with a U.S. equivalent, and our specific experience is with wheat.

Dealing more with the access question, I wanted to talk a bit about the importance of the U.S. market to Western Canadian farmers. If we go to the 2000-01 crop year, which we feel is a representative year, looking back — and we have made some adjustments, clearly, for last year's drought — but looking at the years 2000 and 2001, the U.S. purchased 1 million tons of Western Canadian wheat, 368,000 tons of which was durum, which returned about $400 million or 11 per cent of our sales volume. That does speak to where we are on diversification. This, as I mentioned, was a fairly typical year for our sales program through the late 1990s into the U.S. market.

With respect to the Mexican market, and putting it into that context, in the same year exports to Mexico totalled 1.2 million metric tons, which was 8 per cent of the CWB sales volume. Thus North American trade represents just under 20 per cent of the Western Canadian grain farmers export program.

However, taken all together, export sales are extremely important to Western Canadian industry. In other words, we export 75 per cent of our wheat, 79 per cent of our durum and approximately 26 per cent of our barley, when all destinations are considered. This makes Western Canadian farmers the most dependent on trade of any of the producing regions with which we compete. Thus if you compare our situation, for example, with the U.S., where only 50 per cent of their cereal grains are exported, or with the European Union, where only 19 per cent are exported, it underscores the difference in the views that each of our nations have as we approach fair multilateral trading arrangements. It really underscores the need for fair rules for Western Canada.

Mr. Chairman, at the outset you mentioned the significant challenges with respect to access to the U.S. market, and grains has had an ongoing saga of experiences. In total, since the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement were penned, the Canadian grain industry, and Western Canadian farmers in particular, have faced eleven direct challenges by the United States against access to their market. These battles have cost Western Canadian farmers millions of dollars. In my opinion, in some ways the context for that trade challenge is that we are also competitors on the international side. In other words, as well as competing with the U.S. in their domestic market, we compete with U.S. wheat in many of the offshore destinations where we sell our grain. That, in some ways, underscores the tension in a different dynamic than it is for some of the other sectors. The U.S. allegations are that we are an unfair trading player, but again and again the allegations have resulted in the facts determining that we are, in fact, a fair trader, and although we are a successful trader, we continue to abide by all international trade rules and obligations.

I would like to place before you our view that Canada must pursue improved trade rules to combat unfair U.S. trade harassment of Canadian products. As Western, farmers we speak from our experience in presenting concerns over the misuse of unfair trade rules. The CWB and Western farmers have been, as I mentioned, subject to 11 trade challenges. That has meant, essentially, an unceasing assault throughout the 1990s. In other words, when one challenge ends, the next one begins. However, when independent U.S. agencies have examined the activities of the Canadian Wheat Board, we have been exonerated.

The latest example is the report by the U.S. International Trade Commission just one year ago, the 301 investigation which concluded in February of 2002. The ITC's finding thoroughly contradicted allegations of CWB underpricing and dumping in the U.S. and third countries. One key finding that was reported by their own trade commission was that, in all but one of the 60 months, there was absolutely no evidence of any Canadian price sales below U.S. market at that time.

However, when U.S. politics are allowed to intervene, the facts seem to be pushed aside. Despite a lack of evidence to support the imposition of barriers of entry to Canadian wheat in the section 301 case, the U.S. Trade Representative concluded this highly political trade action by announcing a four-pronged attack on Western Canadians farmers. This attack was to be carried out during the WTO negotiations, as well as by working with domestic industry to investigate whether an anti-dumping or countervailing duty case could be brought against Western farmers by pursuing U.S. wheat's access to Canada, and by bringing a WTO case against Canada's trading practices.

Where are we now? Western farmers are facing simultaneous anti-dumping and countervailing duty cases, as well as a likely WTO case to be brought by U.S. industry and government. Preliminary tariffs on Canadian wheat imported to the U.S. are likely to be imposed in March of this year — in other words, next month. This is happening despite a decade of failed attempts to identify illegal or trade-distorting behaviour on the part of Western farmers through their board.

This is nothing but unfounded trade harassment, and farmers are outraged, I can tell you, since I just came out of a week of farm meetings. They are especially outraged in the context of a drought-stricken, tough year and, I might add, in the context of their understanding of the incredible imbalance in support levels between the two nations.

We have been working closely with the Government of Canada in the defence of the countervailing duty cases and the possible WTO cases. However, a better solution is needed. Canada must seek to establish trade rules that would curtail the ability of groundless cases based on pure protectionism in the future, and must continue to be vigilant in defending the rights of Canadian farmers.

Mr. Chairman, I would like to go briefly into the details of the anti-dumping situation and our concern, as Western farmers, with the applicability of those rules to our industry.

Anti-dumping rules were not designed for agriculture. They were premised on an industrial manufacturing environment where a relatively small amount of producers can control their costs and production levels and engage in predatory pricing. Anti-dumping rules are inappropriate for the grain trade, I would argue, for a number of reasons. In grain, prices are set by global markets, not by individual farmers. Costs are sunk before prices for the crop are determined in any certainty. That means that in some years not all costs will be recovered, while other years yield significant profits, despite the fact that the sellers are always trying to maximize returns.

If I may digress for a second, Mr. Chairman, I can take our own operation in the last year where you go through the process of planning based on a solid crop, and you put your cost structure in the ground. Those costs are determined. If the weather does not come through for you, and you end up with a half or a third of normal crops, then U.S. anti- dumping rules end up clearly putting me well below the cost of production, simply because I divide that production, that cost structure by a much lower production in output. Thus we find ourselves in a court with rules that are simply inapplicable for us. The input cost of wheat production does not vary appreciably by grade, but yet, clearly, the selling structure within which we work varies greatly if the grade output is different.

Finally, Mr. Chairman, the low global grain prices resulting from the heavy competition due to subsidized players means that we do have periods of time when the markets dip below cost of production for Western farmers. However, this in no way can be translated into dumping the way traditionally ``dumping'' was intended to be defined. The nature of our industry means that this simply does not work; it simply does not transfer over. For these reasons, Canada must pursue improved anti-dumping rules that will not unfairly penalize farmers. We have provided this perspective to the Government of Canada and believe it should be reflected in Canada's WTO negotiating position on changes to anti- dumping rules.

Mr. Chairman, if I may, before closing, I would like to just turn briefly to the WTO environment, because the U.S. trade harassment has spilled over into that context.

The U.S. is extending its harassment of Canadian farmers' wheat marketing system into that W.T.O. forum. The latest problem arose just last week with the first draft of the modalities document prepared by WTO agriculture negotiations chair, Stuart Harbinson. This document is extremely unbalanced and uncompromising with regard to organizations such as the Canadian Wheat Board. It takes the extraordinary measure of singling out our exporting agriculture state trading enterprise for potential elimination by defining them as a form of export subsidy, forbidding the use of price pooling, requiring that the single-desk selling monopoly be phased out, removing any government support in the form of borrowing or initial payment guarantees. The U.S. is trying to use this arena to get around its failure in all other avenues to find evidence of illegal trading practices by the Canadian Wheat Board. Unless the U.S. succeeds in obtaining the major changes that it is demanding to the existing WTO rules that govern state trading enterprises, we fully expect that the U.S. would fail in the WTO challenge of Canadian Wheat Board trading practices. Just to underscore that, if you take normal commercial rules as defined in the WTO, they will fail. Thus the only way that they can get us, in our view, is if they define a whole different set of thresholds that we, as a commercial organization, must get through, and then, in turn, attack us under that new threshold. That is the risk that Western farmers currently face. The bottom line is that the Government of Canada must defend the right of Western Canadian farmers to direct the future of their chosen system of grain marketing wherever it is attacked.

Mr. Chairman, if I may conclude, our experience is that U.S. trade harassment gives rise to very serious concerns about the fairness of the current trade rules and how they are applied. The U.S. must not be allowed to dictate how Canadian farmers choose to market their grain, nor can it be allowed to do an end run around their repeated failures to show that the Canadian Wheat Board is an unfair trader by rewriting international trade rules.

By providing for a farmer-elected board of directors, the Government of Canada has firmly committed to giving Canadian farmers the power to determine the future of our board. The legislation now governing the Canadian Wheat Board provides that farmers must vote on any changes to the Canadian Wheat Board single-desk powers. Canadian farmers recently reasserted their support for the Canadian Wheat Board single desk in the December board election.

Because of this commitment to farmers, the Government of Canada must act now to make its voice clearly heard; that this country completely rejects the recent proposal on agriculture state trading enterprises. The Government of Canada must work to improve protection for Canadian farmers to improve trade rules to resolve disputes.

Senator Setlakwe: Mr. Chairman, we have heard this all week: softwood lumber in Vancouver, cattle in Alberta, and now wheat and barley in Manitoba.

I notice that you rely considerably on the WTO rather than the NAFTA panels. Have you had any experience with appeals to NAFTA panels? That is my first question, and I might as well put the second one to you. You have not mentioned anything about farmers. My second question has to do with farmers who want to go it alone without the Canadian Wheat Board. What are your views on that, and what are the percentage of farmers who do want to go it alone?

Mr. McCreary: I just asked our trade policy analyst on the first question with regard to the experience with bi- national panels. I believe that the only occasion was with respect to the ruling on defining the acquisition cost under the NAFTA agreement.

Ms. Alexandra Lamont, Policy Advisor, Canadian Wheat Board: Any initiations using the NAFTA process have tended to come from the American side, rather than the Canadian side. The major experience was actually under a Canada-U.S. trade agreement panel which came out with the definition of what acquisition cost was for Canadian wheat that was to be sold into the U.S. Just to give you a further example of how the U.S. wishes to change the rules in order to favour their point of view, their proposals in the WTO negotiation would effectively override the decision of the NAFTA panel on that issue.

Senator Setlakwe: They have not been very successful with appeals to the WTO, whereas they had been reasonably satisfied with the panel decisions?

Mr. McCreary: The difference in our grain side is that the first step in a dispute is that it goes into U.S. trade court to determine whether or not there is any attack. In the first 10 challenges, we have not lost in their trade court. Were we to lose two or three of those, the next step would have been a bi-national opportunity.

Our experience in the grain sector to this point has been that the cost is just ceaseless harassment. We continue to win in their own trade court, but then they literally start the next action against us before the last one is concluded. There is no way for us — access to the bi-national panel is not there for us because we are not losing. What is there is just an ongoing trade harassment. In ten years, when you have been through 11 challenges and won them, that does not create a venue with which to get to that dispute settlement mechanism. It just costs you. The line I use in the farm meetings is that trade harassment is a cost of doing business in the United States.

The second question deals with the issue of farmers who would like to deal independently within the U.S. market. It is our sense — and we have done some surveys of producers — that there is probably something in the neighbourhood of a quarter to a third of farmers who would like to see some opportunity for either themselves or their neighbours to have that chance if they wished. That is why we had to go through this process of defining an elected way of having that issue resolved because, of course, we either have the single desk or we do not. Those of us who want to work collectively cannot work collectively and have some freeload on the side. Those are polar choices.

The election process is that each of us, as farmer-directors, must get 50 per cent plus one of the support. It is much like a leadership election in the sense that the individuals drop off the ballot until such time as any farmer has more than 50 per cent in their area. In my case in the last election, there were three candidates and I actually won on the first ballot. In the first election there were eight of us, and then three or four dropped off until such time as I had 50 per cent. That is a mechanism that ensures that there is a fair way for the situation to resolve itself.

The board has worked to try and bridge that question. We have created a tremendous set of new pricing flexibility and options for farmers who want more independence in the pricing of their grain, and it is our experience that that has come a significant distance for many of the producers.

The harshest Canada Wheat Board critic in my area pulled me aside at the Old Time Saturday Night and said, ``I just want to tell you that, in my view, the concerns that I had were met, and I will not be voicing that opposition.'' Thus I think there has been an evolution. However, as those of you with a political career know, these evolutions in thinking do not happen overnight. Many individuals would have had differences with the Canadian Wheat Board for many different reasons, and as an elected representative I have to work to find the roots of those differences and, through time, we will work to create as much collegiality in that situation as we can.

Senator Di Nino: As the chairman said, we are here to learn, and we have some questions for that purpose.

You said in your presentation that there are ten representatives of farmers, four from the federal government, and a CEO. What side of the fence does the CEO come from, and how is she or he elected, or chosen?

Mr. McCreary: The act states that the chief executive officer is appointed by the federal government, and their salary is set by the board. Thus there is a dynamic within the Act that requires that there be some mutuality in the agreement. We recently selected a new chief executive officer at the Canadian Wheat Board, Mr. Adrian Measner, who has been on the management team and actually grew up farming not far from me. The selection process was that the board did a major search for a chief executive officer. We then presented a name to the federal government, and they agreed to appoint that individual. Thus, as a board, we very much feel that we own our chief executive officer.

Senator Di Nino: Thank you for that.

I noted your comments about the irritants, the 11 challenges — and I think you won all of them — and now you are suggesting in your presentation that there is a WTO case being brought by the U.S. industry and government. I think you said that you are not overly concerned about winning these things. It is just that they are an irritant that takes a lot of time and a lot of energy, and costs a lot of money. Is this what your main comment is in regards to that situation?

Mr. McCreary: To this point, the main comment has been, yes, it is a bit like being continually charged with the same crime; you are found innocent, and then you turn around and have the state charge you again. I would say that our concerns have been rising on that front because the U.S. have been changing the rules on dumping, and it is certainly the case that they can define a benchmark below which we would be selling. They started out saying ``Let us use the Japanese market as the benchmark.'' The Japanese market is the market in which we attain the best premiums anywhere in the world. Depending upon how the U.S. reconstruct their own internal dumping rules, there is no question that they make those progressively more difficult, and the cases get progressively more expensive. That is one concern that we have, and they seem to be moving fairly quickly on that front.

The second concern that we have, clearly, is that the U.S. has singled out the Canadian Wheat Board as a particular commercial entity, and tried to impose their language at the WTO in order to make it impossible for us to operate. That would mean that if language in that new trade agreement is singled out that only has effects for us, then we would no longer be able to win.

I would say that, in the past decade, our primary concern has been that they can start the next charge immediately after they lose the one before. As we look to the next decade, they appear to have amplified their level of direct attacks and direct harassment to new levels, and there are major risks that producers very likely will face a tariff in March. That is not unlike the situation with respect to beef.

Mr. Victor Jarjour, Vice-President, Canadian Wheat Board: Mr. Chairman, just to add to that point, with respect to the two elements that are critical, the ongoing investigations and actions that the American government has taken against the Canadian Wheat Board, the cost is extremely high. The current anti-dumping countervail duty investigations are not complete yet but are estimated to cost us around $8 million to $10 million, just for the current exercise. They are also market disruptive. Each investigation creates or establishes another level of uncertainty with respect to access to the market, and that, in itself, is impeding trade.

Senator Di Nino: I have a whole bunch of questions, but I am going to restrict myself to just a couple of quick ones. At page 9, you talk about the bottom line being that the Government of Canada must defend the right of Canadian farmers, et cetera, et cetera. The first part of my question is: Have they been defending the right of the Canadian farmers? If not, what else should the Canadian government be doing?

Mr. McCreary: I guess everybody brings their perspective to this question, and I would say from the perspective of Western farmers, our sense is that the degree and the push that we get in that priorization is not as high as we feel we need in order to get that result. What we experience is the harassment. In an environment where our support levels are less than a third of U.S. levels, for Western farmers to be spending $8 million defending a countervail duty challenge and anti-dumping charges is really tough medicine. In that context, we say that it is profoundly unjust. We want to ensure that the Canadian government is pushing as hard as is absolutely possible to use their diplomatic efforts to advance the case that is being lodged against the grain producers.

Senator Di Nino: The harassment leads me to believe that you do not believe that the government is pushing hard enough, and that they should be doing something more. This is something that you are familiar with much more than we are. Do you want them to pay for the costs? Do you want them to put a special envoy just specifically on the CWB? What is it that you would like the federal government to do that it is not doing now? That would be very useful for us to know, so that we can at least consider putting it in our report.

Mr. McCreary: The first thing that we need to know right now, that we would very much appreciate being included in your report, is that we need to see an aggressive rejection by Canada of Mr. Harbinson's draft report on modalities in the WTO. That is singled out, a Canadian institution which trades commercially, exactly like Cargill does, but because it is owned by farmers, the U.S. feels that they have the right to set up different rules. Canada must wholeheartedly reject that move in protection of Western farmers, and we need that assurance from the Government of Canada.

Specific to the bilateral action, it is our view in Western Canada that Canada has a number of advantages. As the chairman mentioned in the report, the ongoing negotiations are complex, and there are aces that we do have. We would like to see the Government of Canada use some of those aces to say that Western grain farmers and the Western grain industry, which has traded without public sector support anywhere near the level of its competition, deserve the support of the Canadian government and deserve to be raised in the context of that diplomatic effort, and not be following behind some of the other sectors. In the West, our sense it that we are not as high a priority as we need to be on the grain side, and we would like to see that happen.

Senator Di Nino: If I could leave with you a couple of thoughts that we have not touched upon, perhaps you can address them when you are answering other questions. One is that no comment has been made about the farm bill, particularly the country-of-origin labelling. It would be interesting to hear from you on that aspect when you are answering other questions. The other point is the border situation, vis-à-vis the new security concerns, and if that will affect you. However, let me pass on the questioning to some other colleague because of time being so short.

The Chairman: I think I am the only one here who was on this committee when the Free Trade Agreement was before Parliament, through all the discussions in the 1980s. We are not rerunning that argument; that is not the purpose of these hearings. However, the thing that I find most interesting — and I was not aware of this until we started in Vancouver — was that, at the time, the whole purpose of the Free Trade Agreement was not to promote more trade with the United States. That was not the reason why Donald MacDonald, who is a very good friend of mine, promoted the idea of free trade. It was to avoid harassment, trade harassment. The MacDonald commission thought that, in the 1980s, trade harassment would become a bigger and bigger issue, and that we should have dispute settlement mechanisms in order to avoid legal fees, in particular. However, from listening to the witnesses who have appeared since we left Vancouver, it has been made clear to me that that part simply has not worked because when you say that you win 11 times, or 10 out of 11 times, the point is that they bring the case again and again, and of course you are in for more and more legal fees, which is exactly the sort of harassment that we all talked about in 1988.

Senator De Bané: Mr. McCreary, during our hearings, we have heard a great deal about this harassment against Canadian exporters. Just to show you how it can be really determined harassment, the group in the United States that has triggered the countervailing duty against softwood lumber, it is a group of companies whose identity is secret. They will not divulge who or what is behind it. That action has brought closure to a great number of business failures and loss of jobs, et cetera. You have the same problem, and others tell us exactly the same thing.

The thing that intrigues me is that your competitors, the farmers of the United States and the European Union, receive subsidies which, on average, are four times what you get. I am intrigued. How do you manage to stay in business if your competitors receive public assistance which is four times what you get? That is my number one point.

Number two, I defended the Canadian Wheat Board when we were at our last hearings in Calgary, and I told those who appeared before us that I could not believe that you cannot band together to do the marketing of a commodity such as the Canadian Wheat Board, which represents 80,000 farmers. That is impossible. It is a very simple concept to understand. Their argument was that the Canadian Wheat Board does not do any marketing. However, in your document, you say that the mission of the Canadian Wheat Board is to do the marketing.

Perhaps, then, you would rebut that assertion that we heard in Calgary that the Canadian Wheat Board are just order takers; that they have agents in different countries but they do not do any marketing?

Mr. McCreary: Sorry, the first question was — ?

Senator De Bané: How do you manage to compete against farmers who receive four times the public assistance that your farmers receive? Compared to what you Canadian farmers get, which is about $30 per ton, the Americans get about $108, and the Europeans get $130, which is four times more than you get. How do you manage to compete in those circumstances?

Mr. McCreary: Mr. Chairman, perhaps I might be allowed to be a bit light on that question. My wife would argue that we survive by being some mixture of incredibly stubborn and incredibly stupid. No, that is obviously not fair: It is an exceptionally good question.

The Western Canadian industry, since the United States changed its mechanisms of supporting farmers in 1985, has experienced 18 years of some of the toughest income settings that any industry can go through. Industry analysts say that it is not a bad thing for the industry to have a shock or two once every 15 years, but it is very tough on the industry to endure a 15-year span where only a handful of years have been decent. The Western industry has survived by continually ratcheting down our costs in a way that has not been seen in any other sector. Our producer numbers have been steadily declining to where I think we have lost in excess of a third in the last decade. We have seen producers working in multiple sectors at the same time. You see a number of phenomena: You see farmers who are picking up a second position as well as farming, and you have seen the tremendous agility of our Western industry.

On our own operation, I lost my father actually a decade ago this month, and in that intervening decade, we have completely changed our cropping mix. We have completely changed the way in which we handle livestock, and we have squeezed a tremendous amount of cost out of that. I think it is fair to say that that has moved from being sort of a restructuring that was cost-reducing to a situation that is causing real suffering among farm families. People are continuing to blame themselves, saying ``Is there another way that I could squeeze a nickel out of costs?'' There is not. Producers have adjusted and moved on that front.

Sorry, the second question was — ?

Senator De Bané: The Wheat Board does not do any marketing but they are just order takers.

Mr. McCreary: Mr. Chairman, you have all had lives in politics, and assertions are made that flabbergast me, actually. The Canadian Wheat Board is all about marketing. The Canadian Wheat Board works with customers in 70 different countries. Our strategy has to be to distinguish Canadian grain as distinct and different, to have it recognized as such, so that it can be sold as a product rather than a commodity, and extract additional values for that. Our large sponsor at the Canadian International Grains Institute does a lot of technical work to define the distinctness of Canadian grain and aid in that being explained to customers. Our agents meet with customers specifically to do that. We deal with customers both at the individual mill level and at the national state level and we have been very successful. I think the strongest evidence of that fact is perhaps the evolutions that you see in people's thinking.

I worked for a brief time for the Canadian Wheat Board before I returned to the farm, and I saw that before I went into farming. However, you take people such as our Chairman, who was elected from a constituency where people strongly held that view, or more recently Mr. Flaman, who was elected as the leader among the border runners in Saskatchewan, and who had held the largest set of fines for running the border and then was successful in his election. He dug into the numbers, watched the marketing that was there, and recently, just last fall, he held a press conference where he said, ``I had made assertions that the Canadian Wheat Board did not do marketing, I have now been on the board which oversees the activities, and I must report that I can say that the Canadian Wheat Board is not just an adequate marketer; it is an exceptional marketer.'' In some ways, that speaks to how we have survived as an industry, because it is my very firm belief that wheat would not even be an option in Western Canada, by and large, for export if we were not marketing it as distinct and different.

Throughout the last year, the commodity-based French soft wheat and the Ukrainian and Kazakhstan wheat coming out of the Black Sea ports traded for about $100 a ton throughout that period. Western Canada has defined our product as distinct and different, and we will end up with returns on which many producers may not exactly be able to go on a holiday, nevertheless costs will be met.

Senator Andreychuk: Mr. McCreary, since you sit on the Canadian Wheat Board, and since that single-desk issue has been raised, when we went through the last agonizing changes to the Canadian Wheat Board and made it more farm controlled, it was as a result of the fact that we were having trouble convincing people around the world that it was farm controlled. In fact to anyone, in a simplistic way, the Canadian Wheat Board was equal to the federal government. I do spend some time abroad, and with agriculture being one of the areas in which I have an interest, that perception has not changed in the eyes of American politicians, in particular. What have you been doing in the Canadian Wheat Board to change that perception?

I hear what you are telling us today, but as we sit, there are still Canadian government appointees on the Canadian Wheat Board, and although advice-seeking is one thing, we still have the confirmation by the Canadian government as to who will run the Wheat Board, the CEO. That is the rebuttal that I get from Americans, et cetera. Are you contemplating more changes to your structures that would support your case, or are you going to change your strategy in marketing?

Mr. McCreary: I think the board is working at two levels on that front. The first is dealing with the perception issue. Perceptions do not change quickly, and we have been making sure that farmers are finding opportunities with key farm groups in the U.S. to underscore what is fact. First of all, I would say the perception internationally has not kept up with the changes that have occurred, both domestically and internationally.

On an ongoing basis, I would say it is also the case that our board examines the linkages that we have with the government. We examine those to determine those which are beneficial to both ourselves and to the Government of Canada, and those which are causing more limitation from a perception point of view than what they are yielding in terms of a benefit. At this stage, we do not have a specific set of Act changes that are recommended. It is also our advice from Ottawa that this is a difficult time to reintroduce a set of changes in Ottawa, although I would say that those discussions have started.

I think, on balance, a lot of the issue with the U.S. is about them not having the perception that we are, in fact, in control, and that this is, in fact, an extension of our farm. When I meet with people from the Kansas Wheat Commission, the guy comes and over and says, ``I want you to meet my wife,'' He introduces me and says, ``This is a cattleman from Saskatchewan, and he does not have horns; his cows do.'' It takes that step from sort of where they thought we were to where we have, in fact, moved. Perceptions change very slowly.

Senator Andreychuk: One other perception on which I want to comment is that we give credibility to that perception when, in fact, as you pointed out over and over again, the Canadian Wheat Board supports, assists and is part of the Western Canadian farm industry. However, you have other grain farmers across Canada who are not subject to a Wheat Board. How do we overcome that aspect at the WTO when we get to terms, et cetera, because we are operating two systems in Canada?

Mr. McCreary: I actually think the fact that Western farmers have voted to go one way and Eastern farmers have voted to go another way strengthens our hand at the WTO. What this situation says is that this is very much a case where a specific subset of farmers have chosen to sell their grain collectively, and it is not a nation state imposing something on grain growers. The fact that you have two distinct grain boards in Canada, the Ontario Wheat Producers Marketing Board and the Canadian Wheat Board, which had a designated region of Western Canada, and we each voted as farmers to go a different and distinct direction in terms of what we saw as our commercial advantage, in our view very much emphasizes that this is, in fact, farmer-driven; it is farmer-directed, that the farmers are determining their destiny and the government is simply creating an enabling environment which allows the farmers to have that control.

Senator Andreychuk: That is how we are presenting it; it is not exactly how they are receiving it, I guess.

Just to follow up on that point, we have heard from all governments in Canada for quite some time that at the next round of trade internationally, we will make a greater case that we do not subsidize our grain farmers, and that the subsidies actually exist in the U.S. and in Europe. I think we were somewhat successful a while back in having the Europeans acknowledge, at least, that they have subsidies. However, I think the expansion of Europe has held that back, too. Recently, they have slowed down on their promise to reduce their subsidies; not to eliminate but to reduce them. Every time I meet with the national negotiators here in Canada, whether at the political level or at the bureaucrat level, they always indicate that they are putting forward a strong case that Canada does not subsidize, but that the others do, and that we will be successful in breaking through at the negotiations. What we were told was that we would have a neutral playing field on terminology, on practice and on process. Now you are here before us today, telling us that your greatest fear seems to be on the WTO front; that the set of terms and definitions, et cetera, will be again controlled by the United States.

Mr. McCreary: Mr. Chairman, the modalities document which was released by the chairman last week was very soft on domestic support; it was very soft on export subsidies, and it specifically went through and listed four attributes about our commercial organization that it wanted distinct and different. Yes, we are concerned. Yes, it is our view that it reflects the nature of a world that appears to be an American empire, rather than reflecting a multilateral environment where reasonable commercial practices each get a fair opportunity to have a hearing.

Senator Andreychuk: Just a final question; it will be on the second round, if there is one. You are making a case here that you want to have different terminology. To what extent are you, or the Canadian Wheat Board, involved in the actual team approach to negotiations at the WTO for Canada? In other words, do you sit on any of the committees? Do you get to go to Geneva and make your case, or are you doing it simply through Ottawa, and Ottawa continues to be the negotiating team?

Mr. McCreary: Mr. Chairman, I would like to speak briefly to that at one level and then ask our vice president of corporate policy to speak to it at a second level. At the board level, our engagement is that the chairman of our trade committee has been involved in a number of committee engagements with the minister and the trade negotiators to put those cases forward, and I would describe that relationship as quite good. We are working as closely as we can. In addition to the engagement at the political level, we have opened the doors and our professional staff have a number of relationships.

Mr. Jarjour: If I might to add to that, just yesterday, as Mr. McCreary mentioned earlier, our chairman Ken Ritter, our president and others were in Ottawa and met with Ministers Pettigrew, Vanclief and Goodale on a number of matters, but obviously this issue came up with respect to the modalities document, and in particular the proposal by the chair of that negotiating group with respect to state trading enterprises. We have certainly been assured that they are taking that situation very seriously. It is one of two areas with which they have the greatest problems, the proposals as put forward by Harbinson.

We are very intricately involved with government negotiators, the chief negotiator in particular and others in the federal government, both at the ministries of Agriculture and Agri-Food Canada, and at the Department of Foreign Affairs and International Trade. In the negotiations, we are members of the Agricultural Trade Negotiating Coordinating Group, which is an advisory group set up by government to garner advice. We sit with a number of other organizations on that team, and we have been providing considerable advice to the negotiators with respect to the WTO negotiations. Thus the links are very close.

Senator Andreychuk: You noted that you were old enough to have been around at the last set of negotiations. Perhaps we could obtain later from our research staff the number of disputes prior to NAFTA, because the issue of border disputes over grain with the United States was there. In one of our other sessions, it was very helpful to be able to talk about what happened before NAFTA, as well as after NAFTA, and whether there was an increase or a decrease in the number of disputes after NAFTA. Perhaps someone could look into that later?

The Chairman: We can certainly get that kind of information, Senator Andreychuk, and we will be looking at that, as you know, because of the quite dramatic evidence that we have had that, in fact, the legal fees for such disputes sound to me to be as bad as they ever were, but we will have to look at what happened before to be able to draw that conclusion.

This business of the Americans being opposed to marketing boards and selling organizations, that is an old story with them. They have challenged the coffee business, the orange business. I am a little bit surprised, and we want to look into how that got into the Harbinson report, if that is the case. Just because it is in there does not mean that it will actually get anywhere, of course. It did not get anywhere on any of the other occasions when it has been tried.

Now, I am reading something here that we have from the U.S. State Department, or possibly it was you who said that they had allies in their opposition to marketing boards and selling organizations and that kind of approach. Who are the allies to that? When I read about this subject, it always seems to be the Americans on their own who have that position. Do they have other people who agree with them, that you know of?

Mr. McCreary: Mr. Jarjour has been doing some work on that subject.

Mr. Jarjour: The Americans, clearly, are the most aggressive with respect to that issue, and perhaps I would say are the leaders on that issue, by far. However, the European Union has also expressed some views in support of the American position. I think we have to keep in mind that this is a negotiation that is looking at a number of elements, the issues of domestic support and subsidies that are provided, where the Americans and the Europeans are very much on the defensive. For example, the use of export subsidies, where again a number of countries, such as Canada, the Cairns Group and other exporters, are aggressively pursuing their elimination. The Europeans and the Americans are on the defensive. On the use of food aid, the use of credit, particularly targeted at the Americans, the Americans are on the defensive, and on those two areas we do share similar objectives with the European Union. My point is that it is a negotiation where there are areas on which they are very defensive, and the European Union is virtually defensive on all elements of the negotiation. On the issue of state trading enterprises like the Canadian Wheat Board, they found that perhaps that was one area where they could share objectives with the United States and not be entirely isolated on the issue.

The Chairman: I understand that is a negotiating position, and the Cairns Group, with which we are very activity involved, of course would be opposing some of those positions quite strongly.

Mr. Jarjour: If I may, Mr. Chairman, the Cairns Group does not have a position on state trading enterprises as such, because it is not one of the areas where they feel a consensus can be reached. The Brazilians and the Argentinians have sometimes expressed concerns as well with marketing boards or state trading enterprises.

Senator Stratton: I do not know how long you have been at this, Mr. McCreary, but I have been around this table talking about this issue for long enough, being a former member of the Agriculture Committee of the Senate, that it seems to me that it is never ending; it just keeps going on and on. The fact of the matter is that we live next to this very large and powerful nation, and it does not seem to matter what the end conclusion is with respect to WTO, or what negotiations take place. If they are unhappy, they will continue to be unhappy, and they will take whatever steps they have to take to satisfy their interests. With that as a background, because I think that is the reality, in my view at any rate, that you have to almost arrive at the conclusion, particularly with the United States and the European Union, that there will be continuing subsidies. They are not going to back down, and they will continue to be unhappy with the position vis-à-vis the Canadian Wheat Board and will impose duties. That, I think, is reality. This is a pessimistic view but one that I think is couched in the reality, and we have learned to deal with it as best we can, but the best we can do is negotiate as hard as we can. The only thing that would be left for us to do would be to simply restructure the Wheat Board under another banner; in other words, form a corporation or a company without government involvement. Do you support that view?

Mr. McCreary: I support the view that there are pressures in the U.S. that will create a dynamic that will cause continuous pressure from the U.S. on organizations such as the Canadian Wheat Board. I would like to link it to Senator De Bané's question about marketing. Western Canada, in the context of the huge subsidies that exist in the U.S. and Europe, in part has a wheat industry because we have a focused Canadian marketing effort. I think it is fair to say that the alternative to a focused Canadian marketing effort would be the three major U.S. companies selling Canadian grain when it suited them, in a much smaller Canadian wheat industry, and a much less lucrative, less viable one, I guess, would be a more appropriate adjective. Yes, I think that pressure exists.

Now, the question then becomes, are there other structures that are possible to attain to allow us to have that identity and those benefits, with the further linkage from government? I have not, at this point, identified structures that could be made to work that would give us that same capacity to operate the single desk and move forward. Is that a useful dialogue within Canada? Absolutely. There has been some work done and some thinking, but I do not know that there has been an answer yet beyond where we are. A producer-controlled, producer-driven board of directors was certainly the first step towards that, and I think it is a key step.

A number of the commercial relations that exist between ourselves and the Canadian government, such as the government guarantees, the guarantees of the credit program, exist for a number of other private players as well. Thus in many ways we have it there already, but what we have difficulty with is the perception. If there are ways of redefining the institutional linkage but having the same sort of commercial relations, then that is the sort of creative thinking that we must all be working at. I am not sure that we would end up with a set of commercial relations between ourselves and the government that would be very distinctly different from what they are now, because in many ways a great many things just make a whole lot of sense, and we have built some pieces here that have allowed us to compete with phenomenal levels of subsidies just by defining ourselves in the way that we have.

Having said that we are looking for ways of creatively doing those things, I do not want to lose the whole success. Not very many industries in Western Canada have forged a marketing presence into 70 countries around the world where they sell something like 89 per cent of their product. At the Wheat Board, only 11 per cent of our dependence is on the U.S., which speaks in part to why you identified Saskatchewan's dependence on one customer as being less than that of many other places. It was a strong marketing force and the efforts of a very professional staff that we as farmers took over in 1998.

Ms. Lamont: I feel it is also worth making the point that, given the experience of other sectors such as lumber, softwood, tomatoes, or any other agricultural industries that have experienced U.S. trade actions, it is certainly not clear that eliminating the CBW or creating a private organization would, in any way, cease U.S. trade harassment of Canadian wheat imports.

The Chairman: That is a very good point.

Senator Stratton: That leads me to believe that we will continue to have more of the same, from what you have said.

That was an interesting statistic that you pointed out where Saskatchewan is the least dependent on exports to the United States, down at 58 per cent, as compared to Manitoba, for example.

The Chairman: Actually, I just said it.

Senator Stratton: You said it, sir, I am sorry. Therefore, a lot of the exports from Saskatchewan go elsewhere, particularly wheat.

In traveling in the Middle East over the last few years, the one thing that became abundantly clear was that they all know about No. 1 Northern, and how they rank that as the best wheat, and they are willing to pay. At any rate, they love our wheat and will pay premiums for it above any other wheat because of the quality. I know that you will tell me that we do everything possible to export our wheat and to marked to those countries, and yet some of them are not importing our wheat currently just because of the situation over there. Could you give us some background on that because, if you are reliant on the United States to such a large degree, I think it is important to know what efforts you are making to diminish that percentage of reliance and export elsewhere, particularly to the Middle East and to other countries?

Mr. McCreary: We have never viewed ourselves as being reliant on U.S. markets. In fact, just the mere threat of tariffs in the current year means that our business in the U.S. will be very small. Also, given that between the time the business is transacted and the product is shipped, a tariff might be imposed on it, means that other offshore markets have been sufficiently attractive that this crop will move with much lower volumes to the U.S.

We do have a marketing strategy that is based, as I said, on maximizing returns. That strategy has long term basis. I, as a board member, see the efforts by our staff, both on moving more of the product to the premium markets as well as what we call attaining and maintaining a diversified customer base, which means taking care of those customers who are prepared to be with you for the long term.

Certainly, the Middle East is an important area for wheat imports, and we do have a presence there. I would say that when you have a relatively shorter crop, the Middle East is a place where the level of premiums that you define for Canadian wheat, relative to the close Ukrainian and European wheat, is much less, and so the business advantage of that and the tight supply situation is less than, for instance, areas of east and southeast Asia or, in some cases, Latin America.

Senator Stratton: Are you saying that you just simply cannot compete?

Mr. McCreary: There are market settings where that is comparatively less attractive, yes.

Senator Di Nino: Just to go back to one of the questions that I asked before, and I will restrict it to the recurring theme that has been going through this past week of hearings, and that is: We have heard from many of the witnesses that the focus of the Americans, and probably rightly so, will be on security and on border issues. I wonder if you share that view from your perspective, and if you believe that that is an issue which you will have to deal with?

Mr. McCreary: Yes. We certainly agree that one of the underlying things within the U.S. since September 11 is that the U.S. has become a very inward-looking nation, and that is a very problematic position for us as its neighbour. When they are both inward-looking and feel insecure, that creates a tough dynamic for us. Have we, at this point, had physical limitations and experienced physical costs as a result of their security agenda? Given the threat of a looming tariff that has caused us to do very much less business in the current year, the security issue has not been as centre-of- mind as the potential for a 37 per cent tariff.

Mr. Jarjour: I hesitate somewhat to give an answer on the record on this one, because it will just get picked up and used. Certainly, our understanding is that the new border measures that are being considered in the U.S. would not apply to wheat, so I think we are alright on that. Now that, obviously, could be subject to change.

The Chairman: Your product goes by rail, I think, does it not? It is mostly shipped by rail?

Mr. Jarjour: Yes, it is shipped mostly by rail.

I would like to go back to another point that was raised a bit earlier. We are expecting that some duties could be imposed as early as March. Will that be the final determination? We do not think so. At the end of the day, countervail duty or anti-dumping procedures are lengthy; they are complicated. Duties can be applied in the short term and subsequently either reduced or eliminated at the end of a portion of the investigation. Ultimately, what needs to be determined by the U.S. International Trade Commission is whether or not Canadian exports of wheat and durum into the U.S. are causing injury. We just cannot see how they can ever demonstrate that that would be the case, and that ultimately duties should not be applied. That is our firmly held position.

The Chairman: I want to remind everyone that we have yet to hear from the Agricultural Producers Association of Saskatchewan and the National Farmers Union. It is Friday, and people have connecting flights to make, such as Senator Setlakwe. These are the problems that I have to face as chairman.

Senator Andreychuk: This is the fate that we often have in the Prairies, easterners complaining about the planes that they have to catch.

The Chairman: Senator Setlakwe has been at every meeting since nine o'clock Monday morning.

Senator Andreychuk: I am just tweaking the chairman, not Senator Setlakwe.

The Chairman: I am not leaving. I am fine

Senator Andreychuk: I will abandon the question. I think it is complex but very important, because it goes again to Canada's strategy. When you are talking about agriculture, it is not just grain, it is all of the agricultural products and how they play in the negotiations, how the negotiations are handled and what gets priority. I will just leave that thought with you. Perhaps I will have to pursue it another day.

The Chairman: Thank you, Senator Andreychuk, I appreciate that. Unless anyone has a quick answer?

Mr. McCreary: It is not a quick question; it is a tough one.

The Chairman: Thank you very much for sharing your wisdom with us. It has been a very interesting session, and we have appreciated it.

Honourable senators, we now welcome Mr. Darren Qualman of the National Farmers Union and Mr. Dave Brown of the Agricultural Producers Association of Saskatchewan.

Mr. Brown, please proceed.

Mr. Dave Brown, Vice-President, Agricultural Producers Association of Saskatchewan: Mr. Chairman, as vice- president of a new organization, it is quite an honour to appear before a committee such as this. I do not feel well qualified to do this, but we are jumping in with both feet.

The Chairman: That is the only way to do it around here.

Mr. Brown: The Agricultural Producers Association of Saskatchewan is a general farm organization that was formed to provide farmers with a democratically-elected, grassroots, non-partisan organization based on the rural municipal structure in Saskatchewan.

The Saskatchewan general farm organization, APAS, has a vision for agriculture; one where profitability is restored to Saskatchewan's producers, where younger generations can afford to take over the future of agriculture, and where producers in Saskatchewan are treated fairly, both nationally and globally.

Saskatchewan farm families operate small businesses and are important contributors to Saskatchewan and Canadian economies. The agri-food industry in Saskatchewan provides nearly 40 per cent of the jobs in Saskatchewan's economy and contributes 9.5 of Saskatchewan's GDP. Saskatchewan exports approximately $4.5- billion worth of agri-food product annually. In general, the agri-food industry benefits all Canadians by providing safe and affordable food, employment and a clean, sustainable environment.

Throughout its history, the success of Canadians agriculture has been dependent on the availability of viable export and domestic markets for its product. As a representative of Saskatchewan farmers, APAS has a significant interest in assuring that both domestic policy and international trade policy provide Canadian producers with an equitable and profitable marketplace.

North American agricultural trade: Since the implementation of the Canada-U.S. Trade Agreement in 1989, Canada's agricultural exports to the U.S. have nearly tripled. The United States is by far Canada's largest agricultural export market. The share of our total exports going to the U.S. has been steadily growing. In 2001, the U.S. market was the destination for over 62 per cent of Canada's agricultural exports. Canada imports from the United States as well. We import more processed food while we export more unprocessed commodity. The range of exports to the U.S. is quite diverse.

The Mexican market is relatively small in comparison, accounting for 33.6 per cent of our agricultural exports in 2001. One of Canada's prime goals in the Canada-U.S. free trade negotiations was to establish control over protectionism as practiced by the United States. Unfortunately, we were unable to achieve that. Canadian pork producers had a painful and expensive experience coping with U.S. countervailing duties on hogs and pork. Beef also had an expensive experience in defending against a U.S.-launched trade investigation. The Canadian Wheat Board has come under scrutiny on several occasions in the last few years. The problem is related not just to the duties that are actually imposed. Even if Canadian producers are able to mount a successful defence against countervail and anti- dumping, the process is time-consuming, costly, and can disrupt current trade.

We have not experienced comparable trade remedy problems with the Mexicans. We are, however, nervous. Mexico has changed its trade remedy law and has increased its anti-dumping action, and the rules on trade remedy are the same for Mexico as they are for the U.S.

It seems that if one type of action does not retard imports to the satisfaction of U.S. producers, new ways will be tried. An example is the new country-of-origin labelling requirements. The U.S. farm bill requires that, after September 30, 2004, retailers provide identification of country of origin for a broad range of agricultural products: beef, pork, lamb, fish, perishable agricultural commodities. Under this legislation, a product must be produced from start to finish in the United States. If the production leading to the final product is carried out in more than one country, all will have to be identified on the label. The parties in the production and marketing chain will be required to maintain two years of verifiable country-of-origin products. The paperwork burden and associated cost created by this legislation are very large. There will be many additional operational costs incurred in adapting to these requirements as well.

This will be distinctive to the importation of Canadian products. The most serious problems will occur where importation of Canadian products creates the need to segregate the imported domestic product in the production and processing system. An example would be importation of Canadian piglets, feeder cattle, slaughter hogs, and cattle. These commodities are being attracted to the U.S. at low value presently by low-priced feed grain supplies in the United States. By adding extra costs to imported Canadian commodity, it will further damage the value of the Canadian producer. This is a continuation of the U.S. strategy to build value in their economy at the expense of the Canadian economy and agricultural industry.

The requirements will increase the cost of marketing food in the U.S. and do nothing to improve the quality or safety of the food that people eat. They are an unfortunate example of what may be done to protect the perceived interests of the U.S. farmers, regardless of the fairness and consequences of the action.

In the period since the 1995 signing of the WTO agreement, the U.S. has provided a high level of support to its farmers, far in excess of what has been available in Canada. The 2002 farm bill just raised the ante in this game of competitive protectionism. Purdue University economists believe that the predicted $18-billion annual price tag may underestimate the full cost of that bill. They think that the support provided by the bill is likely to depress world prices and thus increase the cost of support programs.

These subsidies create an unfair competitive situation in both the U.S. and third-country markets. While subsidies stimulate production in the U.S. and damage prices globally, the U.S. producer is sheltered from the damage by U.S. domestic support programs. The rest of the industry within the U.S. benefits from excess production, either to add value to it, or with it. The rest of the world industry and producers are disadvantaged because they have to compete with products and margins that were funded by the U.S. government.

We support Canada's efforts to achieve effective agreements to curb high levels of agricultural subsidies. The U.S. provides support for a broad variety of agricultural products, and wheat appears to be at the top of their list. When the Canada-U.S. trade agreement was implemented, Canada started exporting wheat to the United States. This met resistance from U.S. producers, and the U.S. government initiated an investigation into alleged unfair wheat trade practices. The investigation did not turn up any unfair practices on the part of Canada. Canada, however, agreed to voluntary limits on the volume of exports for a period of time.

The WTO Agreement on Agriculture eliminated any GATT right that the U.S. might have had to impose restrictions on the import of Canadian wheat. The voluntary limits came to an end but the resistance of U.S. grain producers continued, and there were attempts at the local and state levels to block imports of Canadian grain. These attempts did not succeed, but a new investigation was launched.

Subsidy countervail and anti-dumping actions have been launched in the U.S. trade remedy process. The action is well under way. The U.S. International Trade Commission determined that there was a reasonable indication that industries in the United States are materially injured by reason of imports from Canada of durum and hard red spring wheat.

The Chairman: I do not want to interrupt your thread, Mr. Brown, but I just wanted to ask, do you think that you could summarize a little bit, because it would probably help us all?

Mr. Brown: I realize there is repetition in what we are saying and in what you have heard already.

In the proceeding we have identified problems. What tools do we have to resolve the disputes? It may be possible to challenge the U.S. country-of-origin labelling requirements when the mandatory phase is implemented. This could be done under NAFTA or the WTO, but there is little indication as to whether such a challenge might be successful.

In addition, there already have been massive expenditures incurred by industry to comply with the guidelines. Agricultural trade with NAFTA countries is very important to the interests of Canadian farmers.

APAS recommends that Canadian government agricultural trade policy goals should include the maintenance of export opportunities to the United States, but should give priority to diversifying our agricultural export market so that, over time, we can reduce our dependence on one market.

Our experience in agriculture would indicate that resolution of problems in this manner would mean accepting the U.S. way of doing things and relinquishing our right to have different policies and marketing systems.

Questions related to domestic support, export subsidies and state trading enterprises should be dealt with at the WTO. Canada should maintain its current approach to tariff reductions and elimination. That is, being willing to reduce or eliminate on a reciprocal basis agricultural tariffs, while recognizing that Canada has some sensitive commodities.

We believe that Canada must not only defend its right to establish and maintain effective marketing structures, but seek allies and vigorously promote WTO rules that clearly confirm the right of countries to grant producer-supported marketing bodies the power to regulate the volume of the domestic product marketed, to operate a central desk selling agency, and to pool returns in a fashion that does not distort international trade.

Canadian farmers are affected by the actions of governments in other countries. Foreign subsidy, trade actions, and other activities can all harm the Canadian agricultural industry. Where an injury to Canadian farmers can be identified, the federal government must be prepared to implement and fund strategies and programs to mitigate the imbalance re affected commodities. In order to be effective, safety net programs need to take into account the effects of actions by other countries.

The provision of adequate weather and income safety net programs for Canadian agriculture is essential to the maintenance of the competitiveness of our agriculture sector.

We thank you for the opportunity to present our views to your committee and would be pleased to try and answer any questions that you may have about our submission.

The Chairman: Thank you very much. Mr. Qualman, would you like to proceed?

Mr. Darrin Qualman, Executive Director, National Farmers Union: Mr. Chairman and honourable senators, just to make two quick comments to describe the two organizations that I work for and with. The NFU was founded in 1969 and is a voluntary organization of farm families across Canada, producing all commodities. We work to maintain the family farm as a primary unit of food production in Canada, and to ensure that all Canadians have access to safe and nutritious food.

The National Farmers Union was also a founding member of a global federation of agricultural organizations called Via Campesina. Created in 1992, the Via Campesina has grown to include more than 69 farm organizations in 37 countries, and the Via Campesina members represent small- and medium-sized farmers, landless peasants, agricultural workers, rural women and indigenous communities.

In the short time that I have today, I would like to do two things: One, very briefly, I want to outline some of the negative effects that trade agreements, including the trade agreements between Canada, the U.S., and Mexico, have had on family farm agriculture and the agricultural sector in Canada. Second, and probably more important, I want to present a theory as to why free trade and globalization are hurting and not helping the family farms in Canada. I want to present, perhaps, a new way of thinking about trade and trade agreements.

As you know, in January of 1989, Canada implemented the historic Canada-U.S. Free Trade Agreement, following that up in 1994, along with the United States and Mexico, with NAFTA, and then in 1995 we implemented the WTO agreement on agriculture. Beginning in 1989, then, we have had 14 years of what most Canadians would call free trade. The question is, how is it working for farmers?

In attempting to answer that question, I will just look at some economic indicators that compare 1988, the year before we embarked on the free trade experiment, to 2002. I think you have the report that I sent in. It is just four pages long, and I think we can move through that very briefly. It has some of the numbers in it that I will refer to. I will move through the numbers very quickly and you can look at them at your leisure.

Again, we are comparing 1988 to 2002, with leading economic indicators, in an attempt to answer the question: How has free trade worked for farmers? None of these numbers have been adjusted for inflation.

The Chairman: Sorry, none of them?

Mr. Qualman: None of them have been adjusted for inflation. They are just the raw numbers.

As was pointed out by Mr. Brown, between 1988 and 2002, our exports have more or less tripled, and they rose fastest after 1988 with the signature of the Free Trade Agreement, so agri-food exports have nearly tripled.

Realized net farm income, however, has remained more or less unchanged. Farmers have not benefited from those increases in exports. Again, these figures are unadjusted for inflation. If you adjust them for inflation, the realized net farm income numbers are down a further 24 per cent.

Between 1988 and 2002, farm debt doubled from approximately $22 billion to approximately $44 billion. The farm price of wheat has remained virtually unchanged. This is 2002 data. For 2003, it may be a little better, perhaps a dollar a bushel better, but those numbers seem to be moving up and down and it is not certain what we will get in the 2002-03 crop year.

The Chairman: Just one point, these figures, of course, they are total exports? They are not just exports to the U.S.?

Mr. McCreary: That is correct. The grocery store price of bread has increased, even as the price of grain has decreased. We point out that in 1988 we had the Two-Price Wheat program, so millers were taking $7 wheat and making it into bread. Now they are making bread out of $4 or $5 wheat, yet the price of bread in the grocery store has gone up.

Farmers are not the only part of the system that is being hurt. The bottom two figures there talk about our cooperatives. In 1988 the vast majority of Western Canada grain worked through four farmer-owned cooperatives. Now we have no farmer-owned cooperatives in the west moving grain.

In the dairy sector, about two-thirds of Canadian milk moved through farmer-owned cooperatives in 1988. Today, approximately only one-third does.

The next three numbers show the takeover of the Canadian food processing sector by foreign transnationals, or the next two, I guess it is.

In 1988, half the flour milling capacity in Canada was owned by Canadians. Today, just 21 per cent is so owned. In 1988, Archer Daniels Midland did not own a flour mill in Canada. Today, Archer Daniels Midland owns half the flour mills in Canada.

The next number is with respect to malt plants. This is very strategic. Malt is what we make our beer out of, and losing control of this sector to foreign transnationals is very strategic. Canada had owned 95 per cent of its malt capacity in 1988. In 2002, we own just 12 per cent.

With respect to the change in jobs, there has actually been a decline in food processing jobs between 1988 and 2002, and that is especially problematic. Free trade agreements, increased exports, the end of the Crow Benefit — all of those things were to lead to increased processing, especially in Western Canada and rural Canada, to jobs and to diversification. Unfortunately, that has not happened.

The next numbers look at farmers' costs. The freight rates are up five-fold, and that is directly related to trade agreements. One of the things we were told when the Crow Benefit was terminated in 1995, was that that needed to be done in order to comply with trade agreements. We have seen freight rates in this case, in the Saskatoon example, increase five-fold.

Fertilizer is up; fuel is up. The number of major machinery companies fell from six to three. I will come back to this subject just at the end. You see this in sector after sector: tremendous consolidation and concentration, mergers, and the numbers of companies and competitors decreasing.

Government spending in support of agriculture has gone down. Again, these figures are not adjusted for inflation. The number of farms in Canada has also gone down. Between 1996 and 2001, as you probably know, we lost 11 per cent of our family farms in this country.

The last four, and I realize that I need to move through this submission very quickly, just zeros in on one sector, and that is the hog and pork sector. Between 1998 and 2002, two-thirds of the family farm hog producers in Canada were pushed out of production. Now, many people would say that if you reduce the number of farmers, you will get greater efficiency. We have always disputed that, but let us look at that for a moment. We have reduced the number of hog farmers by two-thirds, and if you are looking for efficiency and the benefits of efficiency, you would expect to see lower grocery store pork prices. If you look, grocery store pork prices have gone up by almost 40 per cent. If there is efficiency there, you just wonder who is benefiting from it. The farmer is not benefiting.

You will notice in the next set of numbers that the farmer is getting the same amount that he or she did in 1988, and in the packing plant work he is getting almost the same pay per hour that he or she did in 1988. Thus it is tough to see where those benefits are going.

Just to close, I guess we could provide more data on the effects of free trade, but I think the deeper you look into it, the more you see that the increase in trade and the effects of the free trade agreements over the past 14 years have not benefited family farms, and have not benefited the Canadian agricultural economy as a whole. That begs the question of why that might be. I guess the way we have come to understand the effects of trade agreements is that trade agreements do two things simultaneously when it comes to agriculture. The first thing they do is they force the 1 billion farmers on the planet into a single, hyper-competitive market, and at the very same time they trigger waves of mergers amongst agri-business corporations that reduce competition amongst those companies. Thus the competition faced by farmers goes up, and the competition faced by machinery companies, for instance, as they merge and become fewer, actually goes down.

It is not controversial to say that as competition increases, as it has for farmers, prices and profits will go down. As competition decreases, as it has for agri-business corporations in almost every link in that agri-food chain, as that competition decreases through mergers, prices and profits will go up. That is exactly what we have seen over the last 14 years.

We have a farm crisis today, and the farm crisis goes on and on. However, if you look at the corporations that control almost every other link in that chain, the fertilizer companies, the railways, the chemical companies, the food retailers, the restaurants, the profits are very large, with return on equity rates in the 20, 30 and sometimes 100 per cent levels, while farmers have lost.

What has happened is that, by globalizing the markets and bringing farmers into competition with each other, we have pushed down their market power, and through mergers, the transnationals that control the other sectors have pushed up their market power. It is that balance of market power that determines the allocation of profits within the agri-food chain.

The current farm income crisis is happening in spite of all these increased exports because the trade agreements that facilitated the increased trade have also facilitated explosive growth in the market power of agri-business transnationals that have allowed them to take the profits that formerly went to the farm level.

Just in closing, I will say that it is not that trade is a problem. Had we maintained a similar structure to what we had in the 1970s, and perhaps the early 1980s, more trade would have benefited farmers. But as we globalized those markets and handed more power over to the transnationals, those same transnationals have been able to take any benefits that might have gone to the farm level, and farmers have been left worse and worse off.

The Chairman: Thank you, Mr. Qualman. I must say that I cannot help but comment that if there is one area where there does not appear to be free trade, it is in agriculture, with all of the barriers that exist, and the fiddling around that goes on in the agricultural market.

Senator Andreychuk: I have followed the fate of the National Farmers Union for many years, as long as Wayne Easter, anyway, and Netty Wiebe.

I have seen the statistics and your issues. I have two questions: One is, would we be better off today, given that we have NAFTA, free trade and the movement in the World Trade Organization, if we had had a different farm policy towards farms? In other words, I have heard the comment made that if we took the European approach, the French and the German approach about family farms, would we be better off? As opposed to not defining what our objective was with respect to the farm person, and that has lead to some mixed messages and opportunities for the federal government?

The Chairman: To whom were you addressing your question?

Senator Andreychuk: To Mr. Qualman, Mr. Chairman. Then my other question is for either one of you: Given that the World Trade Organization is inevitable, and given that agriculture is a part of it, and the fact that we appear to be supporting it, and the fact that we have gone through the experience of NAFTA, does that strengthen our ability to understand and work in this global market, or have we now set ourselves up in such a way that we find ourselves with certain impediments that we now must deal with that may ultimately put us in a poor position? On the first one, Mr. Qualman?

Mr. Qualman: Your question, would we have been better off had we had different farm policies: You mentioned Netty Wiebe, the former president of the National Farmers Union. Netty Wiebe has often said that Canada in a significant way does not have a farmer agricultural policy; it has a trade policy that it dresses up like a farm policy. The assumption was that we would put a tremendous amount of effort into increasing agricultural exports and setting targets and meeting them, and then set higher targets. If we could just increase exports high enough, then everything else in the sector would just get dragged along with it. It is sort of like another version of the trickle-down effect.

On the back page of the report that you have in your binder is a graph. It shows exports going up and up ever more sharply, and net farm income remaining more or less flat. The agricultural policy of the government has not worked in that exports have gone up dramatically but they have not brought up the net farm income with them, so that farm families have actually suffered.

Mr. Brown, would you like to answer the second question?

Mr. Brown: Mr. Chairman, I think the feeling is that we would have a more powerful case if the rules for that kind of thing were established at the WTO; that they would supersede NAFTA, and it would be more clear in the end and give us a more powerful step ahead, if it was on the world scene that those rules were established.

Mr. Qualman: The Via Campesina, as I mentioned, is composed of farm organizations from 37 countries. The senator mentioned that the WTO is inevitable, and asked if we are better off now than we were with NAFTA. The Via Campesina does not believe that the WTO is inevitable. They have asked that food be taken out of WTO. We have only had food in the WTO since 1995, so it has been a short time. For many years before that, food was not included in the WTO, and the farm organizations around the world, including most recently from Mexico, are asking that food be taken out of the WTO.

The Chairman: I would just like to remind everyone that when the NAFTA, or the FTAA-NAFTA agreements were signed, there was no WTO, so I think that is an important point, that the WTO has only existed —

Senator Stratton: However, there was the GATT.

The Chairman: There was the GATT, but the GATT did not have anywhere near the same importance of the WTO.

Senator Andreychuk: My point is that I think WTO is here to stay. It is inevitable in the sense that all the countries have agreed to it, and most are aspiring to be part of it. I have not heard one country say it does not want to join; it is a question of can they, and when. The question of whether agriculture should be in or out is a different issue.

Just a follow-up question, though. When we knew that there was an informal trade involving certain countries, et cetera, the Cairns Group was very helpful to Canadians and farming, as well as to our agricultural policy. Therefore, my question is: We understand our problems with the U.S., and some of those problems are broader than the U.S. in the agricultural area. Rather than pulling out of the WTO, which would seems to marginalize our effect, is there any movement anywhere by any farm groups to start working cross-country to support our agricultural policy?

I know that there were some initiatives into France and Poland, but because of the distinct farm policies there, they were not too interested in joining such groups. Therefore I am wondering, do we have any natural allies, as we did with the Cairns Group, which itself appears not to be a good fit with the WTO in every case?

The Chairman: Mr. Brown, would you like to try and answer that?

Mr. Brown: If I understand correctly, the question is: Have farm groups worked with other farm groups in other countries to this effect? The supply and manage people, to my understanding, have made great steps to work with like organizations in other countries to come to agreements before it gets to the WTO, so they all know where they stand, and they know the things that they can agree on before it ever gets to the WTO. As grains and oilseeds people, I think we are a long ways from that yet, unfortunately. Does that answer your question?

Senator Andreychuk: Yes.

The Chairman: Mr. Qualman, did you want to say anything?

Mr. Qualman: The National Farmers Union and many farm organizations have understood that as trade agreements go international, farm movements must go international. We are working internationally. Our vice- president was recently in Brazil and France, our former president is in Geneva, I think, still, today, and a tremendous amount of work is being done on this front.

Unfortunately, or maybe fortunately, when you actually talk to farm organizations and farmers in those other countries, you get a dramatically different view of how things should work than you would get if you were in Geneva at the WTO negotiations. When you go to Philippine communities and let them know you are a Canadian farmer, they are extraordinarily unhappy about the Canadian pork that is flooding down into their markets, and the Canadian grain. They also make the assumption that we are profiting at their expense. Thus there needs to be a different way of thinking about trade rules. Canadian farmers are not doing very well, and many farmers around the world think we are doing well at the expense of the countries into which we are exporting. We are building those bridges, but we are coming to conclusions that are significantly different than what is being discussed in Geneva.

The Chairman: Senator De Bané?

Senator De Bané: To our first witness, Mr. Brown. Your brief pinpoints a lot of very disturbing trends in American policies. The one about labelling of meat, on that one I think you make a persuasive case that it will discourage Americans from buying Canadian meat because it will be a nightmare to do all of the labelling that will be required after September 2004.

I think the remedy you propose would be for Canada not to pursue additional improvements in NAFTA, because Canada will always be the weaker partner, but through international organizations such as the WTO. Would you please explain a little bit more why you think that we should go that route instead of negotiating with our closest and only neighbour?

Mr. Brown: Mr. Chairman, I would say that we have to work on both fronts. Obviously, the NAFTA has not worked well. Why it is not working has been described in many ways this morning already, and I do not know how we are going to make it work better.

The labelling issue without a doubt is very troubling, and I would think that maybe we need to pursue it on both levels: to challenge it at the WTO as well as nationally.

Darrin, perhaps you have something to add to that?

Mr. Qualman: I am afraid I do not see a lot of optimism at either the bilateral Canada-U.S. or the international level. I think it is important, and many people have identified that today, to be very active on both levels. For instance, with the Canadian Wheat Board, we see bilateral challenges coming out of the U.S. and multilateral challenges in the current draft of the agricultural proposal.

Senator De Bané: You see, from what I read in the brief of Mr. Brown, he puts it very pervasively that if that country-of-origin labelling has to apply to meat and live animals, it will necessitate a degree of sophistication in following the product in such a way that it will be a big disincentive to American buyers to buy Canadian meat. Is that your argument?

Mr. Brown: Yes. APAS is part of the Canadian Federation of Agriculture. We have joined the CFA. I happened to be in on a meeting with Bob Friesen and Bob Stallman in the United States, and they just do not see any problem with this, how it will create a problem for Canadian producers in any way. They feel that it is just something that they are doing to protect the quality of their food. I do not think that they see it — well, they did not admit that they see it as a way of keeping Canadian products out of their country. I guess from our perspective, somewhat limited as we are at APAS, we do expect the CFA to follow a lot of this stuff for us, and it will be very difficult by 2004 to prove that it does not work. I guess we will see where we stand by 2004. They will say that it is voluntary until then.

Senator De Bané: You also say in your brief, Mr. Brown:

Our experience in agriculture would indicate that resolution of problems in this manner would mean accepting the U.S. way of doing things and relinquishing our right to have different policies and marketing systems.

In other words, you are quite pessimistic in viewing bilateral negotiations with them, and thus this sentence that I have just read from page 8 of your memoir, that we would have to adopt their system. Then just to prove you are right, you defend very vigorously the Canadian Wheat Board.

We were just in British Columbia, and I was very surprised to realize that some of the companies operate on both sides of the border, like the big Weyerhaeuser paper product company, which is a huge American one. They operate on both sides of the border, but they are still one of the parties in the countervailing and anti-dumping suit against our softwood lumber. They are also on this side, with their Canadian companies opposing that thing. In other words, they are on both sides of the case. There is no government agencies, marketing agency, and still they are the object of harassment.

I agree with you that Canada should not let others dictate to us the way in which we do business.

Mr. Qualman, I have read your document very attentively, and perhaps because I have a mindset, in a way, but I have great difficulty believing your end conclusion that trade agreements between countries are bad for our farmers. This is your conclusion, that all of those international trade agreements are very bad for farmers. They are very good for agri-businesses, like big corporations, but not for the individual farmers. This is your main point. I have great difficulty in believing that.

What I realized through our hearings is that, unlike other countries, we are not supporting our farmers to the same extent. Our farmers are not being supported by our government to the extent that farmers in other countries are being supported by their governments. However, to say that the solution is that we should put aside those international unions, I have great difficulty with that. I would like very much to have your view. What is it, then, that you recommend? That we get out of all of those international agreements?

Mr. Qualman: When the price of grain spiked in 1995, 1996and 1997, the price of fertilizer spiked exactly with it, and the price of machinery spiked upward, and the price of chemicals rose. We are seeing it again. If you watch fertilizer prices this year, they are rising again. The companies claim that it is natural gas costs. Interestingly, however, Agrium Inc., the largest fertilizer processor in North America, in their annual report of 2001, bragged to their shareholders that fertilizer prices follow grain prices.

What I am saying is that grain producers, for instance, are hooked into a chain where if their profitability increases, the very powerful transnationals that provide us with our fuel, our fertilizer, our chemicals, all of those things, they have the power to price according to what the market will bear and extract all of that additional profit right out of the farm level.

The price of grain increased dramatically in the mid-1990s, and net farm income remained just about flat, because our input cost just went up. That, in a nutshell, is one of the reasons that we have not benefited over the last decade or the last decade and a half.

Your question is, what should we do? We need to control corporate power, because corporations on both sides of the farm, on the processing, retailing side and on the input side, are so few in number, so uncompetitive, and so powerful, that they can just take all of the profit that would normally come to rest at the farm level; that did, in fact, come to rest at the farm level in the 1970s, for instance.

If you are asking me what we can do, my answer is that we need to foster competition amongst those companies so that they cannot opportunistically profiteer. We need to rein in the market power that they have so that farmers are on an equal footing, so that they can claim some of the huge profits in the agri-food chain. There are billions of dollars of profits in the agri-food change chain. Just to conclude; what we should not do is sign trade agreements that increase their power.

Senator De Bané: You are suggesting that our present antitrust laws, anti-cartel laws, those are not working enough to control those large corporations?

Mr. McCreary: Canada's current antitrust laws, the Competition Act, as it is called, is a joke. I went to Calgary to testify at a Competition Bureau hearing where our two main propane distributors, ICG and Superior, had applied to merge into one. We thought, well, this will be a no-brainer; we will win this one. We gave evidence of how the companies had profiteered during a wet fall when farmers had to buy propane to dry their crops, and we showed how there was not enough competition already. That merger is going through. It is going ahead.

As we show in our paper brief, the number of machinery companies has been cut in half, down to three. We have two railways. We are headed for three or four grain companies. Less than five chemical companies make our chemicals. Four make our fertilizers. There is not even half enough competition out there.

Senator De Bané: Would you be kind enough, Mr. Qualman, to explain to me the first two items on your paper? Number one, agri-food exports, they were 10.9 billion in 1988, and in current dollars in 2002, they are $28.2 billion. The next item is realized net farm income, and this one in current dollar amounts has been stagnant: $3.9 billion in 1988, $4.1 billion last year, and in constant dollars, of course, it has decreased substantially. Could that be the reality?

Mr. Qualman: Your question is, could that really happen? I think it could. The one number that is not there would be gross farm income. Exports have gone up; gross farm income has gone up as well, although not nearly as significantly. But what has happened is that as gross farm income has gone up, the expenses have gone up even faster, such that net income is unchanged.

Just to explain, the reason that we put those two together is the first one, exports, is the easiest way of understanding whether free trade has worked, are we selling more, and do we have more market access. The second one is a way of answering the question: Are farmers better off? That is what we are trying to do with those two numbers.

Senator Andreychuk: Just a clarification that farm incomes have not moved, but 11 per cent of the farmers are no longer farming. Then one can go one step further, which is for agriculture, and ask: Who is still farming and are they farming in the same way?

The Chairman: Is that a question, Senator Andreychuk?

Senator Andreychuk: No, I think it elaborates on that. I was correct that you said 11 per cent? They keep going every week.

The Chairman: I have to admit that I did not quite follow the argument on the grain exports. These are total exports; they really do not relate specifically to the free trade agreement because, as we have heard, many of our exports go to Japan, the Middle East and other countries. We are a very big supplier to Iran, for example. This does not relate to the free trade agreement, actually. The grain exports represent a global figure.

One of the interesting things that the committee has been discovering about the free trade agreement is that many of the things that people think have something to do with the free trade agreement actually do not have anything to do with that agreement. For example, grain shipments to the U.S., I think, go up and down for totally different reasons. I do not know that we have yet asked the question: Was there much of a tariff with the U.S. on grain? I have not heard that question asked. Is anyone in a position to answer that? Was there a tariff on grain, a U.S. tariff, that would have been affected by the general lowering of tariffs through the free trade agreement?

Mr. Qualman: I do not know.

The Chairman: Mr. Brown?

Mr. Brown: Could I ask Ian McCreary to expand on that for us?

The Chairman: In other words, were tariffs a factor in grain trade before the FTA? Because the FTA was very much a tariff-reducing agreement. That was one of the aspects of it. Were tariffs ever really a factor in the grain trade?

Mr. McCreary: I should comment on that in two parts. I would have to check but there were, I believe, small tariffs on the grain side. However, the major change on the grain side was that in the Agriculture Adjustment Act there was a provision, I believe it was provision section number 22, allowing the U.S. to put physical barriers on the import of grains — something which, prior to the FTA, were always assumed to restrict the amount of flow that could occur. The introduction of the Canada-U.S. Free Trade Agreement created an environment where the restrictions on the U.S. doing that became more —

The Chairman: Sorry?

Mr. McCreary: The restrictions on the U.S. doing the physical imposition of the barriers were no longer in place. The exporters then proceeded on the assumption that they had access, where previously they had worked on the assumption that their access was limited, in the volume sense. In other words, there was a substantive adjustment in access information.

The Chairman: Then there was sort of a non-tariff barrier before the Free Trade Agreement which you have described as stopping the import of grain into the U.S.?

Mr. McCreary: Yes. I would describe it prior to that time period as definitely a factor, but it always remained ill- defined although it hung over the marketplace.

The Chairman: Just to get back to this whole business of our exports to the U.S., vis-à-vis your presentation earlier, you are telling us that that has been replaced by other forms of non-tariff barriers: They are taken before the International Trade Commission for one thing or another. To me, that makes the point that whether or not there had been a free trade agreement makes little difference. Mr. Qualman, you talk about free trade, that free trade has been a bad thing, I think, is the general tenor of your remarks. The question that poses itself is, has it actually been a factor at all? What effect has it had, one way or the other, actually, in terms of the free trade agreement? After all, grain has been flowing back and forth between Canada and the rest of the world for over 100 years, or at least for a very long time. As everyone knows, as a country we have never consumed anywhere near the amount of grain that we produce, so obviously we need to sell it to other countries. That has not changed, and it has not been affected by anything, actually. We are a major exporter of grain — am I not correct? We always have been, so that has not been affected by any free trade agreement. There has always been a trading environment for grain. I am just making that observation.

Senator Di Nino: We should recognize and acknowledge the fact that we have had some pretty bleak pictures painted today with, I think, a hidden message. I think one of the presentations, I am not sure which one, used the term this morning that it sounds like our agricultural industry is not necessarily playing on a level playing field; that the field is perhaps tilted, I think is the word that somebody used.

I was about to ask you both the same question, because I, too, as we are ruminating, came up with the question of how much of the trade that we do in agri-foods is U.S.-based, how much is E.U.-based and how much is Asia-based. Perhaps either of you can answer, if you have that information.

Then also dealing with that area, the question that I wanted to ask Mr. Qualman is, do you know, from looking at the statistics you have provided, whether farmers in other parts of the world suffered the same fate, or have they, in effect, improved their lot?

The Chairman: I think we have been told that 11 per cent goes to the U.S. I think that is what we heard this morning.

Senator Di Nino: That was from the Canadian Wheat Board.

Mr. Brown: According to the figures that I have, in 2001 the U.S. market was a destination for over 62 per cent of Canada's agriculture exports.

Senator Di Nino: Do you have the figures on the E.U. or others?

Mr. McCreary: I am sorry, I do not have those figures.

Senator Di Nino: Mr. Qualman, do you have any statistics on whether the American farmers have improved their lot or are suffering the same fate, or what is happening in other markets if you have that?

Mr. Qualman: Farmers around the world, because they all face a similar so-called world price, have been devastated. When you look at the American farmers, the first thing you see is the huge amount of money that the government and the farmers think is necessary just to keep them on the land. That is an indication of just how bad things are there, and despite that huge amount of money, they too are experiencing dramatic farm loss.

We see the same thing in Europe, but even more so in developing countries in Asia and in Central America. Mexico, for instance, which used to be self-sufficient in staple foods such as corn and beans, has become a major importer of those foods as their farmers have become first destabilized and then pushed out of production. There were border blockages and protests all throughout Mexico in the last month and a half by those farmers, who are extraordinarily desperate right now because of the effects of the NAFTA. The full effects are just now coming on line with the removal of the tariffs on the final agricultural commodities.

Senator Di Nino: The question, then, really is, if this is happening in Canada, and if this is happening in Mexico, particularly — and I will get back to you in a moment, Mr. Brown, before I lose my train of thought — if you are suggesting that it is happening in the U.S., does the NAFTA have anything to do with it, or are there other factors?

Mr. Brown: APAS has been having meetings with national farmers' organizations in the United States. We have been down there to a meeting. They are coming up here in the middle of March to meet with different farm organizations. The meetings so far with that particular organization tells us that they feel they are in the same situation as we are in regard to a lot of this. They feel that corporate ownership is taking them over. They feel that they no longer have any control over their industry because of the degree corporate control. They feel that there are definite benefits to our system. They look to the north here with envy at our system.

In the United States there is obviously a big difference between what the American Farm Bureau says and what a lot of producers in the United States are saying. I hope that over the next few months, through talking to these people and perhaps forming alliances with them, we can come to some conclusions on this issue, because there is no doubt about it: that feeling is there, across the line.

Mr. Qualman: If I understand your question correctly, what you are asking is: if we are seeing these effects in many places, then does NAFTA have anything to do with it?

Senator Di Nino: We are not sure.

Mr. Qualman: If that is the question, I would answer it in this way: The tools that are used to restructure agriculture are different from place to place. In Canada and the U.S., for instance, we had the FTAA, then the NAFTA and the WTO. In Central America or Asia, they have the WTO and IMF structural adjustment programs. But all of them are doing more or less the same thing: dismantling government support, dismantling marketing boards, drawing up the borders for increased imports and exports, allowing capital to come in to take over the trade, et cetera. Therefore I think that NAFTA was a significant tool in North America in moving towards the same ends that have been accomplished in other places through IMF structural adjustment policies or WTO programs.

The Chairman: I just have to remind everyone that agriculture was not dealt with to a great extent in the free trade agreement because it is an impossible subject to deal with. Agriculture and culture were two things that were sort of set aside, actually.

Senator Di Nino: Mr. Qualman, you made the comment that the National Farmers Union was created to provide safe and nutritious food to Canadians. I think those were your words. Has there been any change to that? Those two objectives, are they still being met, or do you see a deterioration, either in the safety or in the nutrition, because of the introduction of NAFTA?

Mr. Qualman: The short answer is no. It is difficult to point to degradation in food safety or nutritional value as a result of the North American Free Trade Agreement. However, within the larger context of the sustainability of increasingly industrialized, large-scale agriculture, in the time that we have before the implementation of the Kyoto accord, we now have hog mega-barns producing 50,000 hogs a year. Those are some of the real problems that are emerging. The question, then, for each of us is: Is that increasingly industrialized, large-scale agriculture in any way related to agreements such as the North American Free Trade Agreement or the WTO? If you think that it is, then there are food safety and sustainability issues that flow out of those agreements.

Senator Di Nino: My last question is a specific one. Can you tell us what the position is of the National Farmers Union as to whether agriculture should be excluded from trade agreements. If you said it, I did not hear it. Perhaps you would like to repeat it, or tell us if you have not already done so?

Mr. Qualman: The position of the National Farmers Union, formulated in conjunction with the other members of the Via Campesina, is that food and agriculture should be taken out of the World Trade Organization agreement. Just to follow-up on that, there should be a new multilateral framework designed such that it does not put trade at the top; that it puts the ability of countries to feed their people at the top; that it puts sustainability and access to land and water and other things — seed, for instance — at the top of the list, and that trade should be subordinate.

What we are seeing right now is that trade and those uncontrolled flows of agricultural product around the world are tremendously destructive to your ability to create food in your own country, whether you are in Malaysia or in Indonesia or in the Philippines. There should be a multilateral framework for food trade, and it should have trade as one of the priorities, but not the top priority, as we currently see with the WTO.

The Chairman: On behalf of the committee, I want to thank both of you. Your testimony has been very informative. As I have another commitment to attend to, Senator Di Nino will chair the remainder of the meeting.

Senator Consiglio Di Nino (Deputy Chairman) in the Chair.

The Deputy Chairman: Honourable senators, we now welcome Professor George MacLean from the University of Manitoba.

Professor George MacLean, Political Studies, University of Manitoba: Thank you very much. I would like, first of all, to express my appreciation to the committee for allowing me to contribute to your deliberations. In the interests of time, I will make three introductory comments that will frame most of my statements.

There are three points in particular that I would like to make in regard to Canada's trade relationship with the United States and Mexico. The first is that Canada's trading relationship in NAFTA will continue to be driven by our bilateral relationship with the United States, and this is in Canada's best interests. The second point is that our trade relationship with Mexico continues to grow, but there are explanations for this growth. Third, in the wider context of economic relations in the Americas, particularly FTAA, it is in Canada's best interests to advance the multilateral model that has been forged with NAFTA.

Canada currently accounts for 3 per cent of the export share of world trade. In relative terms, the United States embodies over 13 per cent, and Mexico under 1 per cent. We rank eighth in terms of our share of exports, and 86 per cent of all of our exports go to NAFTA partners. Canadian exports as a percentage of GDP were 45.6 per cent in 2000. Imports as a percentage of GDP that year stood at 41 per cent. These figures have been increasing steadily.

The point that I think we all should bear in mind here is that we are one of the most trade-dependent states in the international system, in particular amongst the advanced industrialized economies, and that our economy has been increasingly tied to that of the United States. Of our total gross domestic product in 2000, which was $1.23 trillion Canadian, over 65 per cent came as the result of trade, import and export, with other nations. As a means of comparison, in the United States the effect of global trade on its overall 2000 GDP of $15.85 trillion Canadian was just over 20 per cent.

In Canada, we have a small consumer market base of 21 million people, adult consumers, in a total population of over 30 million, which means that we are simply unable to sustain, domestically, a market of $1.23 trillion. Thus there are various reasons for our level of acute interdependence with the U.S economy in regard to global trade. I mentioned the issue of our small consumer base. In addition, the nature of the Canadian economy is significant. There is a widespread belief that our economy is driven by primary industries. In fact, most of the total economic activity in Canada is derived from manufacturing, research and development, and service industries. Canada's economy is heavily dependent on trade as a result of a highly integrated relationship with the U.S. In 2000, 86 per cent of our trade exports were destined to the U.S. and 76 per cent of our imports came from the U.S. We are the most important trade partner of the United States as well, notwithstanding what Condoleezza Rice might say. The fact is, we represent about a quarter of the total trade of the United States, which is a larger percentage than the U.S. has with Mexico and Japan, although both Mexico and Japan each represent somewhere between 13 and 15 per cent of American total trade.

What this tells us is the following: The United States is far more diversified in terms of its trade relationship than Canada, and that comes with certain costs. On the other hand, the relationship that Mexico has with the United States is very similar to the relationship that we have with the United States. About the same amount of our total trade is representative of the figures of Mexican trade with the United States, around 87 per cent. Therefore we have something in common with Mexico in regard to our relationship with our larger trading partner, the United States.

It is axiomatic, I suppose, to state that Canada's real interests in the region are defined by its relationship with the United States, and this relationship is, in many ways, one of our own determination, given the relative lack of real attention paid to Canada in Washington. However, though we may be able to determine the relationship that we have with the United States, and I mean here in particular the degree to which Canada decides to emphasize its bilateral relationship with the U.S., the real consequence, I think, will come as a result of the United States' corresponding engagement with Canada.

Therefore, on this matter, Canada is best served by underscoring at every opportunity the unique partnership that it shares with the U.S. Initiatives relating to the unique relationship that we have tended to emerge in Ottawa, and largely this is due, I would say, to the foresight of our government officials, not Washington. However, Canadian interests in the bilateral relationship can and will be challenged if initiatives, or perhaps expectations, originate in an unanticipated fashion in Washington.

My second point relates to Canada's relationship with Mexico. It is notable that after the Canada-U.S. Free Trade Agreement entered into force in 1989, Canada was initially not invited to join the new free trade negotiations between the United States and Mexico. That only came later when we requested to have a formal seat at the table — and that was for good reason. There was some question about why we wanted to be there, since we had no formal relationship with Mexico to speak of in terms of our trade. However, there were good reasons for our being there, and the most prominent reason was the trade policy coming out of Washington, arising from the ``hub-and-spoke'' mentality of maintaining bilateral trade links throughout the Americas, starting with Canada, of course, but moving through the Americas, and centred in Washington. There is a strategic advantage to having this kind of relationship in a region. That is that you can manipulate and, in many ways, coerce relations on a bilateral level that you could not manage to coerce within a multilateral framework. Therefore Canada's decision to try to get the CUFTA, or Canada-U.S. Free Trade Agreement, incorporated into NAFTA, and thus avoid a free trade agreement purely between the United States and Mexico, was a good piece of foresight, and it has really formed the basis for the Free Trade Agreement of the Americas. I think if you look at the basis of the elements of negotiation of the FTAA, the Free Trade Agreement of the Americas, right now, you will see many of the same components that were reflective of the initial NAFTA relations.

Our total trade with Mexico was never very large. In 1998, I think it was $1.6 billion, and it has grown marginally. The total trade is now around $14 billion, although heavily influenced by the price of oil. Thus it is a fluctuating relationship, and not anywhere near the kind of diverse relationship that we have with the U.S. Further, we do not think we are looking for a growing relationship with Mexico specifically, but rather inculcating that multilateral framework that we created in the NAFTA throughout the rest of the Americas. We managed to protect favoured access to the American market and we had better guard our position as principal trade partner with the Americans through a multilateral framework. The bilateral component of the CUFTA has become a trilateral element and, I think, is now moving towards a multilateral element as well.

There were varying reasons for each of the NAFTA member countries to pursue a trilateral deal. For Canada, it was primarily widening the multilateral framework that we had created with the NAFTA agreement. Similar reasons or arguments were being made in Mexico City. Mexico would like to offset the degree of prominence that Canada has in her trade relationship with the United States, and to that end Mexico has been largely successful. Its trade with the United States has been increasing every year on a relative level since the signing of the NAFTA. The United States is now the destination of 88 per cent of total Mexican exports, and 74 per cent of imports to Mexico come from the United States. Mexico was also seeking other ends as well; for instance, offsetting the degree to which Brazil has an element of strength within the relationship in the Americas.

Our relationship with Mexico is limited, but trade is the single most important aspect. It has doubled since the signing of the NAFTA, and that is an important element to keep in mind. On the other hand, other aspects of our relations with Mexico are relatively insubstantial. To that degree, I would suggest that the focus we have placed on Mexico as a NAFTA partner has been largely successful, which is broadening the multilateral framework, and it makes sense for us to continue that.

It is interesting to note that many of our friends in the Americas often suggest that Canada has a special role to play in regard to the relationship with the United States. As one member of the Ministry of Foreign Affairs in Mexico City said to me, ``In Canada you are able to say things to the Americans that we are not able to say. This is why we would like to have you at the table.'' There is, therefore, a very important role that we can play with that relationship, and the degree to which we may, in fact, be marginalized in the Americas is offset by the very close relationship that we have with the U.S.

The last point that I would like to make in my comments has to do with multilateralism and, increasingly, multilateralism within the hemisphere. In the broader context, I think Canada's foreign interests are best served through the pursuance of multilateralism, particularly as a means of preventing a singular ``hemispheric'' policy that is forged and implemented in the U.S. In short, Canada needs to maintain a balance of principal attention to bilateral relations with the United States, coupled with an enhanced role in the hemisphere. In fact, in spite of the typical interpretation of a ``continentalist'' vision for Canada, which assumes a degree of retreat from multilateralism, the new community within the hemisphere actually allows for a weighing of both bilateral interests and continental visions for Canadian foreign policy.

Canada, in the past, sought to implement free trade as a means of supporting a small domestic consumptive market through greater integration with larger economies. In addition, Canada's increasingly synchronized economic relations with the U.S. has caused it to look beyond the Canada-U.S. links to the broader American hemisphere.

Following successful negotiation of the NAFTA, the Free Trade Agreement of the Americas seems to be the next logical step, and it is not surprising that the first steps were taken in 1994. It is a logical offshoot to the NAFTA. As economic integration deepens in Europe and Asia, it is not surprising that, within the Americas, increased trade and commercial links in the region would be seen as a means of providing benefits to member states and to guard against possible negative effects of the new regionalism specifically in other areas.

Canada has been very effective and, I think, successful as well in maintaining independent interests while achieving the goals of multilateralism. Canada is not faced, I would say, with a simplistic decision between bilateralism or continentalism. The reality is far more nuanced than that, and the visions are, in fact, complementary.

Canada's primary goals, both for the bilateral relationship with NAFTA and also for any new community building, are decidedly trade- and commerce-based. That is not to suggest that other relations are not important; in fact, they are often intricately related. However, a trade-dependent state must focus on the strong export markets and the primary goals that come with that relationship.

Canada's near-term goals for economic integration in North America ought to strive for a common market. This is the next step from a free trade zone. A deeper economic union such as the one in Europe is simply not a realistic possibility, given the distinctive challenges faced by the developing nations element in the free trade zone. On the other hand, greater mobility for goods, services and workers amongst the three NAFTA partners could provide the basis of a model for a common market within the Americas.

Something else we need to keep in mind: forging into a hemisphere does not mean that the NAFTA will disappear. There is nothing in the articles of the proposed FTAA that would mean that the NAFTA agreement would have to disappear. It is possible to have a two-track trade policy here, to be moving towards a common market on one hand, and a simple free trade zone on the other. That is the sort of track mentality that has been taking place in Europe, and on a smaller scale it may work here as well. I think that it would.

Canada and the U.S. are the two most prominent users of trade legislation, along with the European Union, such as countervail, anti-dumping, non-tariff barriers. Standard regulations for subsidies and competition between the two states, I think, would reasonably reduce the degree to which both countries rely on this trade legislation. In addition, Canada needs to strengthen environmental and natural resource regulations, even if it requires independent bargaining with the U.S. alone, outside of NAFTA, and there is nothing to stop this. A multi-speed NAFTA, or even an FTAA is both plausible and possibly advantageous. It does not have to be everything at the same time, with everyone involved.

In terms of time lines, given the particular difficulties to be faced in all of these issues, I think that Canada should seek staggered implementation of regulation standards on subsidies, competition, the environment, resources, and possibly a customs union. For example, setting up a customs union amongst the NAFTA partners but removing the FTAA members from a list of non-member countries subject to external tariffs and mutual quota regimes could provide a base step to a common market, and at the same time mitigate potential problems or ill will within a Free Trade Agreement of the Americas multilateral negotiating forum. Thus we can link our objectives for deepened integration in order to offset some of the possible problems that could arise as a result.

To that end, therefore, Canada needs to identify advantageous features of a deeper integration with the U.S. I think a common market would improve Canada's access to American trade and commerce. An economic union would likely reduce Canada's influence and options. Dollarization, which has been proposed from time to time, would not necessarily solve the problems associated with the current strength of the Canadian dollar, and would offer up all sorts of other problems in terms of policy latitude.

To conclude, Canada has a record of tracking bilateral goals, using multilateralism as a tool. In many cases, pursuing multilateralism has also created subsequent benefits for Canada. Regional integration in North America can be followed in this manner, provided that Canada has prioritized its objectives and remains realistic in its approach.

Senator De Bané: Professor MacLean, I learned a lot of things from your document, particularly about a lot of data. The statistics were very interesting.

Perhaps you could comment on this statement by Professor Helliwell at UBC, who told us that, in his opinion, and in the opinion of some of his other colleagues, major benefits for Canada have been achieved through the free trade agreement with the United States, and that a deeper integration will not bring substantial benefits; that most of the benefits have been achieved already.

Second, what do you think of this assertion from several witnesses who appeared before us, such as Roy MacLaren, former Minister of International Trade, and some very reputable experts who told us that under any circumstances or considerations, we should not look to a customs union with the United States, because for two countries where one is ten times bigger than the other, it would mean that one of the partners would dictate everything, and that we will have no say in the matter; that we would just be there as a partner. I would like very much to have your opinion on those two assertions.

Mr. MacLean: On the first point about the Free Trade Agreement of the Americas versus the NAFTA, I think in real economic terms it is true that most of the achievements that Canada might have sought through a NAFTA were, in fact, achieved even through the CUFTA, the Canada-U.S. Free Trade Agreement. Our relationship with Mexico has grown, but our relationship with the United States has grown even more strongly since the signing of the CUFTA, and, for that matter, since the signing of the NAFTA itself. Our trade is now worth over $700 billion U.S. on a yearly basis.

As far as our consideration of a wider Free Trade Agreement of the Americas goes, I do think that there are two other considerations that we must bear in mind. The first is, what does the United States want? Although it has been dampened a little bit in Washington recently, the discussion of hemispheric free trade is still very much an agenda item in the Department of Commerce and also in the executive elements of the United States government. It is still very much on the agenda. If that is the case, I would say it is in our interest to try and mitigate the negative possibilities of a diverse trade relationship that the United Sates has with the Americas, with regard to the effects of a linkage through the Americas that would not include us. In other words, we may not get anything economically out of it, but we would certainly benefit from it in terms of protecting what we already have. Therefore I think that that remark was correct, but that there is something else to keep in mind.

The second point, what I would say about that is that there are, of course, other benefits from looking towards the continent in regard to an integration of policies, economically based, into other elements as well. For instance, on issues of military integration, on matters of immigration, on issues of environmental standards, and labour issues as well, there is a lot more to be gained from a linkage with 34 countries than you might achieve with just three. There are certain benefits that we achieved through our NAFTA relationship.

In addition, being at the table with so many different actors means that it is far easier to achieve independence in your foreign policy, strangely enough. Some would say that that is a paradox: How can you achieve independence if you are working with so many other actors? Much more effectively, I would say, than if you were off on your own, especially boxed out from the larger group.

On the issue of the customs union, I would agree that a customs union, at this stage anyway, is further down the road. I think moving from a free trade zone to the common market seems to be the next logical step. That would involve mobility of goods and services, and workers among the three partners. The customs union idea — that is, boxing off one region from the rest of the international system — actually makes sense from the Canadian perspective because there is so little left over in our trade with the rest of the international system. That is to say, our exports markets would not be hurt tremendously by our having a customs union.

On the other hand, I do think that having maintained close relations with Europe and with Asia is a good thing, and our involvement in APEC is a good example of this. I would not like to see, for instance, a rapid moving ahead of a customs union coming at the expense of what we have left of our transatlantic relationship with our European partners.

Senator Andreychuk: Some of your points were very good. On the future expansion into an arrangement with 34 countries, that is an interesting point and a good foreign policy point, too.

The two questions to which I wanted answers out of that are, first of all, we started by saying, as you have, that multilateralism has served Canada well, and that we should pursue into Central and South America some further extension of a NAFTA-like agreement, and of course that came about. However, we also said that if that is not to be, then we would pursue bilateral agreements for trade, and we have done a bit of that, too. The United States, similarly, has started the same bilateral approach. It would seem to me, however, that Latin America, from my last reading of the situation, has slowed down. While there are committees working on the extension of a free trade area, and from time to time political statements, there seems to be more movement bilaterally. Is that your idea? Is that because of the questioning by Brazil, and even to a certain extent by Chile, of the Mercosur arrangement? After all, one of the supporting reasons that we wanted to go into the free trade region, was to get into that already-established working relationship. Do you have any comments?

Mr. MacLean: It is an excellent point. If we were to go through the time line of the 1990s, we would see in the early 1990s a great deal of enthusiasm for a rapid expansion and integration of markets within the Americas, and not surprisingly, in 1994 in Miami, that Summit of the Americas initiating the Free Trade Agreement of the Americas with the time line of 2005. That has slowed down tremendously during the late 1990s, affected not least by the problems that have been encountered by South American economies, slowing export markets, and closing protectionism in the United States, which lead to some skepticism that a rapid expansion would actually be effective. The Four Amigos idea became a little bit less talked about, and the idea of bilateral negotiations picked up.

I mentioned before that there is nothing in the FTTA that would disallow the NAFTA to continue, and in fact there is nothing in the FTAA that would not allow Mercosur, the Andean group, the Caribbean group, or any other free trade zones within the region to coexist. In fact, I think it would be a good idea, in the early stages of the provisional FTAA, to have those existing organizations maintained, because they are effective, and they are established. Mercosur is the best example of that.

As far as the bilateral initiatives that are taking place now, and it is true that Canada and the United States have initiated their own road towards integration, but I do not think it is the most effective way to go about achieving multilateral free trade in the Americas. For one thing, Canada does not have nearly as much prestige or as much marketability desire amongst the South and Latin American countries as does the United States. We are far better off, I think, to pursue the free trade agreement agenda through an FTAA, because we can do it in the context of 34 separate actors, rather than resulting in some sort of plenary meeting of several inter-linking bilateral zones, including our own. In addition, there may be different levels of weight and attention paid to these by the more prominent actors.

Overall, I think the process that is being undertaken in Europe, which of course began with six actors and moved slowly towards integration, and now it is projected to have upwards of 25 — again that is by the year 2005, or so — is a good example of a template for the Americas, which is slow integration, allowing for different sideline agreements or other systems of integration to co-exist before they are fully enveloped into a larger organization; more of an evolution.

The Deputy Chairman: I have to be the bad guy, I am sorry. I am sure, Professor MacLean, that my colleagues will agree with me that you have a particularly well-prepared document that has added value to our deliberations. I regret that we have some time constraints which are not of our making, but we want to thank you for coming, and we look forward to meeting with you on some other occasion. I just have a personal comment: I think that in the political field you would do very well.

The committee adjourned.