Proceedings of the Standing Senate Committee on
National Finance

Issue 42 - Evidence - June 5, 2013 (Afternoon meeting)


OTTAWA, Wednesday, June 5, 2013

The Standing Senate Committee on National Finance met this day at 2 p.m., for a public hearing, to study the subject-matter of Bill C-60, An Act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures.

Senator Joseph A. Day (Chair) in the chair.

[Translation]

The Chair: Honourable senators, the Standing Senate Committee on National Finance is meeting today at 2 p.m. to study Bill C-60, an Act to implement certain provisions of the budget tabled in Parliament on March 21st, 2013 and other measures.

[English]

Honourable senators, this is our ninth meeting on the subject matter of Bill C-60. This afternoon we will be looking at Part 3, Division 1, clauses 62 to 103, beginning at page 43, which deals with amendments to customs tariffs.

From the Canadian Federation of Agriculture, we welcome Mr. Ron Bonnett, President; from the Canadian Meat Council, we welcome James Laws, Executive Director; and from the Retail Council of Canada, we welcome Karen Proud, who has helped us previously. She is Vice-President, Federal Government Relations. Finally, we welcome Mr. Mike Moffatt, an Economist and Assistant Professor at the Richard Ivey School of Business at Western University. Thank you all for being here.

Perhaps we could start with Mr. Laws and work our way across that way, if that works for you all. We normally ask you for a brief presentation to describe your interest in being here, and particularly your position with respect to the bill we are dealing with. I will call on each of you for brief introductory remarks, and then we will get into a question- and-answer discussion period.

You have the floor, sir.

James Laws, Executive Director, Canadian Meat Council: Good afternoon. The Canadian Meat Council is based here in Ottawa. The meat processing industry is the largest component of Canada's food processing sector, with annual revenues valued at over $24 billion and with a total employment of almost 70,000 people. Canada's meat processing industry adds value to the live animals born and raised on Canadian farms, provides a critical market outlet, and supports the viability of thousands of livestock farmers.

I am pleased to provide very brief comments on Bill C-60. We have been asked to comment specifically on Part 3, Division 1, clauses 62 to 103.

Canada's meat industry supports the government's proposal to extend the General Preferential Tariff and Least Developed Country Tariff, established in 1974. Division 1, clauses 62 and 63 of Part 3 amend the Customs Tariff to extend for 10 and a half years, until December 31, 2024, provisions relating to Canada's preferential tariff treatments for developing and least-developed countries. Canada should do this because preferential tariffs are intended to increase the export earnings and promote the economic development of developing and least-developed countries.

However, we have no comments on clauses 64 to 103 of Division 1, which reduce the rates of duty under tariff treatments in respect of a number of items related to baby clothing and certain sports and athletic equipment imported into Canada on or after April 1, 2013.

Although not included in Bill C-60, we suspect that you may wish to know our comments on the Government of Canada's notice in Canada Gazette Part 1 of December 22, 2012, regarding proposed amendments to Canada's General Preferential Tariff. We support the government's intention to modify the list of beneficiary countries and withdraw from General Preferential Tariff eligibility on July 1, 2014, the 72 countries that have achieved positive shifts in income levels and trade competitiveness.

The government will modify the list of beneficiary countries by withdrawing from General Preferential Tariff treatment countries that are classified for two consecutive years as high-income or upper-middle-income economies according to the latest World Bank income classifications and, second, have a share of world exports that is equal to or greater than 1 per cent for two consecutive years according to the latest World Trade Organization trade statistics.

We understand that the government plans to reassess the remaining countries every two years, and that is a good thing.

We fully support the Government of Canada in its efforts to eliminate tariffs by opening more markets to our goods, especially Canadian meat products, and by diversifying our trade with more reciprocal trade agreements, such as the Canada-EU Comprehensive and Economic Trade Agreement and the Trans-Pacific Partnership agreement. We believe that there will be no significant effect on meat, specifically, from the changes of countries that will lose their General Preferential Tariff eligibility.

As far as pork meat is concerned, Canada already offers complete duty-free access to all countries of the world. As for beef, Canada currently has a large 76,500-tonne duty-free tariff rate quota, along with duty-free access for unlimited quantities for countries with which Canada has a free trade agreement, such as Mexico and the United States.

Canadian import tariffs then jump to 26.5 per cent on beef imported from other countries. The only other countries eligible for duty-free access to Canada for beef are those classified as "least developed,'' and it appears to us that those countries do not export beef to Canada.

As for poultry products, Canada has very large import duties of 238 per cent on imported chicken and 154.5 per cent on imported turkey. Countries classified under the General Preferential Tariff list receive no preferential access to Canada's protected poultry industry.

Thank you very much. It would be my pleasure to respond to your questions.

The Chair: Thank you, Mr. Laws. Mr. Bonnett, please go ahead.

Ron Bonnett, President, Canadian Federation of Agriculture: Thank you for the invitation to appear before your Finance Committee and to provide comments on Bill C-60 in relation to proposed changes to the Customs Tariff.

I am the president of the Canadian Federation of Agriculture, and I am also a beef farmer from Bruce Mines, Ontario, which is near Sault Ste. Marie, for those of you who do not know.

The Canadian Federation of Agriculture is Canada's largest farm organization, representing provincial general farm organizations as well as national and interprovincial commodity organizations from every province, with over 200,000 Canadian farmers and farm families represented. This also represents a large portion of the GDP in Canada.

I previously presented CFA's general views on Bill C-60 before the House of Commons Finance Committee in May and made the following points. We support the $165 million investment to Genome Canada and the $20 million to the Nature Conservancy of Canada. We support a Canada-first labour policy, and the Temporary Foreign Worker Program should contribute to this by facilitating permanent residency for skilled agricultural labourers. Changes to the program should minimize labour market opinion delays for sectors with labour shortages and firms with track records of ongoing extensive domestic recruitment efforts. Industry labour task forces should be adequately consulted in developing cost-recovery fees and implementing other changes.

Today I will restrict my comments specifically to the removal of Brazil, Argentina, India, China and Russia from the list of General Preferential Tariff eligible countries.

The CFA is supportive of this change conceptually, but would like to make sure that the proposed changes do not negatively affect agricultural producers in Canada. The General Preferential Tariff was established in 1974 and offers lower than normal tariff rates for imports from developing countries. The GPT, and similar programs in the G7 and other developed countries, aim to promote economic growth in developing countries. The program has worked. Brazil, Argentina, India, China and Russia are now among the world's largest agricultural producers, with each of these countries leading world exporters of many commodities.

For example, China ranks first in the world and India second in cereal production. Brazil is the largest exporter of poultry globally, while Argentina ships the most beef in the world.

Argentina, Brazil and Russia compete aggressively against Canada on the world market for a range of agricultural commodities such as beef, wheat and soybeans, and are well-positioned to meet growing world food requirements. Argentina and Brazil already have an established presence in Canada, exporting $1.2 billion in agriculture and agricultural products to Canada in 2011. In comparison, Canada sold only $77 million to their respective markets.

Each of these countries' agricultural industries have expanded and matured at incredible rates over the last 20 to 30 years. This is either to meet the significant increases in food demand as incomes increase throughout their population, as in the case of India and China, or in the case of Brazil and Argentina, in response to specific government policies designed to use their respective agricultural industries as catalysts for overall economic growth.

On the other hand, Canadian producers rely on some of these countries for their input supplies. As an example, in the case of generic crop protection products, they are often imported from several of these countries. Increased tariffs on these products could make Canadian farmers less competitive.

It must be remembered that the new higher tariffs generated by removing the GPT treatment for these countries would be superseded by any tariff concessions that Canada may offer in bilateral or regional trade agreements with these countries. Furthermore, in implementing the changes of the General Preferential Tariff, the government should be systematic in selecting which tariff lines to increase to ensure Canadian agriculture remains competitive.

To summarize, the Canadian Federation of Agriculture generally supports the government's proposal to amend Canada's General Preferential Tariff regime, particularly the removal of Brazil, Argentina, India, China and Russia from the list of GPT-eligible countries as each of these countries has well-developed agriculture industries that directly compete with Canadian products in many international markets.

However, the government should also be selective in increasing tariffs to ensure that Canadian farmers remain on a competitive footing with these countries.

I would be pleased to take any questions you may have.

The Chair: Thank you, Mr. Bonnett. We appreciate your comments. I am sure there will be follow-up questions in due course. First we will hear from Mr. Moffatt.

Mike Moffatt, Economist, as an individual: My name is Mike Moffatt and I hold the rank of assistant professor.

The Chair: Point of order?

Senator Hervieux-Payette: When you speak, we do not have the text in front of us. Very often we have the text and we follow with you. I will try to remember what you say and have an interaction with you, if you could slowing down, speak more slowly. In my case, you do not speak my mother tongue and it is difficult for me to listen in French and then try to intervene afterwards.

The Chair: In defence of our witnesses, they each provided us with text, but we did not have an opportunity to have it translated. You are reading from prepared text. We have the text in one language, but we do not circulate it unless we have it in both languages. That is just a function of such short notice we have had to invite you here.

Thank you very much. If you could heed the honourable senator's comment and read a little more slowly, that would be appreciated.

Mr. Moffatt: Absolutely. I should put the coffee away.

My name is Mike Moffatt and I hold the rank of assistant professor in the Business, Economics and Public Policy group at the Richard Ivey School of Business. I am representing myself today because the Richard Ivey School of Business holds no position on tariff changes. I would like to thank the committee for inviting me.

I am here to discuss the elimination of tariffs on baby clothes and sporting equipment as given in Part 3, Division 1, clauses 62 through 103 of Bill C-60. I am in full support of these tariff reductions.

These changes will help alleviate the Canada-U.S. price gap that was the basis of the fine report issued by this committee. This price gap is important for two reasons. The first is that higher retail prices lower the well-being of Canadian consumers. The second is that the price gap leads to higher levels of cross-border shopping, causing a hollowing out of the Canadian retail sector, particularly when those price differences are due to Canadian retailers having higher costs than their American counterparts. Reducing tariffs addresses both of these issues.

In particular, I am a supporter of the list of products that are receiving tariff reductions. The tariff elimination on baby clothes is a particularly progressive measure, as these make up a larger portion of spending for lower-income households. As an amateur athlete and the father of a two-year-old, I am delighted by these reductions on a personal level as well. I am hopeful these changes will lead to future tariff reductions on items such as athletic apparel and running shoes.

I understand the effects of these changes will be monitored closely to see who receives the benefits of these tariff reductions. Since my testimony will be etched into the permanent record, this seems like a fine time to offer my predictions. The direct beneficiary of any tariff changes is the importer, as they are the ones required by law to pay those tariffs. However, part or all of these savings may be passed along upstream to foreign manufacturers or downstream to retailers and consumers. In theory, foreign manufacturers could benefit from these tariff reductions as follows: If you reduce the tariff on baseball helmets and the demand increases, that could raise the price of those helmets, causing the foreign manufacturer to benefit.

This seems highly unlikely in the context of the Bill C-60 changes. On a global scale, the Canadian market is simply too small to cause those kinds of changes. Many of these products are manufactured in China, and Canada makes up only 2.4 per cent of the Chinese export market. Historical evidence shows it is quite difficult to pass a burden of tariffs along to foreign countries, so I see no reason why our experience here should be any different.

Canadian entities will be the beneficiaries of these tariff reductions, but the major question will be which Canadian entities will benefit. Will it be the importer, retailer or consumer? Since large retailers are often their own importers, I will focus on the question of retailers versus consumers.

We can think of a tariff basically as a sales tax, although one hidden from the consumer. The best evidence we have on the economic incidence of sales taxes comes from a 1999 study by Belsey and Rosen. They find that after an adjustment period, changes in sales taxes are fully passed along to consumers. In some cases they find that the shifting is often greater than one to one, a phenomenon that was also discussed in the Senate report.

What ultimately determines how much will be passed along to consumers is the level of competition in the retail sector. Items such as hockey helmets and baby clothes are sold at a variety of competing retailers, so expect savings to be fully or nearly fully passed along to consumers and prices to be adjusted over one or two sales cycles. For more esoteric items such as baseball pitching machines and cricket bats, the market is less competitive, so retailers may be able to retain a significant portion of those savings. We cannot forget, however, that much of the competition faced by Canadian retailers in border regions comes from cross-border shopping, so this makes the retail market even more competitive than it may appear.

My only concerns about the recent tariff proposals deal with a Budget 2013 item not in Bill C-60. The changes to the General Preferential Tariff system and the associated $350 million per year tariff increase more than undo the benefits of the reductions on baby clothes and sporting equipment. While I fully agree with the government that the system needs modernizing so that countries such as China and South Korea do not receive preferential treatment, there are other ways of doing so that do not raise tariffs.

Finally, I believe that the concerns that retailers may use the tariff reductions to increase their profits are somewhat misplaced. With high retail vacancies in southwestern Ontario and an unemployment rate of 9.6 per cent in Windsor, Ontario, a stronger and more profitable retail sector should be desired, not feared.

Thank you for your time.

The Chair: Thank you, Mr. Moffatt. Ms. Proud, you have the final say.

Karen Proud, Vice President, Federal Government Relations, Retail Council of Canada: Thank you. It is a pleasure to be before this committee again.

Retail is the largest employer in Canada, providing jobs for more than 2 million Canadians. As the Retail Council, we represent more than 45,000 storefronts in Canada. This year, the Retail Council of Canada is celebrating our fiftieth anniversary as the voice of retail. Those celebrations are currently under way in our annual store conference being held today in Toronto.

I would like to start by thanking this committee for the thoughtful work you did on your study of the reasons for the price differences between Canada and the United States. Were it not for your work in this area and your recommendations related to product tariffs, I might be sitting here today with a very different position.

That said, while we are grateful to the minister and his officials for eliminating the tariffs on baby clothes and sporting equipment, we look at this as just a pilot project. We believe it is a first step in a much broader exercise to address all outdated and unnecessary tariffs, and we are committed to working with the government to demonstrate that when tariffs are eliminated, consumers will benefit.

With regard to the bill itself, RCC does have some recommendations for additions to the list of eliminated tariffs that were presented in the bill. We feel there are some areas, especially in products in the category around sporting equipment, where some products were missed. This morning, I provided the clerk with a copy of the list of tariffs that we feel were omitted in the bill with the hope that it has been shared, and I see it has already. I thank the clerk for that. This is where the RCC would ask that those omitted tariffs be added to the bill. As mentioned, we believe this to be just a first step in addressing the tariff issue.

The minister has indicated a willingness to look at further tariff elimination. When I appeared two weeks ago at the House of Commons Finance Committee, I suggested that they take on the task for the review of the tariffs. My suggestion seemed to go over like a lead balloon, so I will make the same request of this committee.

We actually feel it would be a fairly simple exercise to go through the 1,400 pages of the existing Canadian Customs Tariff 2013 to basically look line by line at each of those tariff lines to determine whether there is any domestic production of those products in Canada. If not there is not, the simple answer to RCC and our members is that those tariffs should be eliminated.

If this were to happen, RCC's concerns with the second aspect of the bill that I want to talk about — the proposed review of the General Preferential Tariff — would be greatly, if not completely, eliminated.

I will speak just a few words on the General Preferential Tariff. We understand the government's policy intent behind this review, but we do have some concerns with the implementation, the scope and the potential negative effect on consumers.

To address the concern, we have asked the government for four things. We have asked for more time. We were grateful that the government extended its proposed timeline from June 2014 to January 2015, but we still need more time. Retailers go through very complex negotiations with their international suppliers, and in order to find other sources for quality product, they need more time. We have asked for a minimum of two years.

We have asked for some specific product exemptions, especially in areas where these products are necessities to Canadians and where other sources are difficult to find. We have given examples, like that of canned tuna, where the sources for that will be eliminated from the GPT list. That represents significant protein for Canadian consumers.

We have asked that the rules of origin for products sourced from least-developed countries be changed to minimize the impact of these changes on those products, or at least to allow for a longer phased-in approach.

Finally, we have asked that subsequent reviews of the GPT, currently planned for every two years, be done on a 10- year cycle to allow some certainty for our members in sourcing products and entering into contracts. Just imagine if you were not sure that, after two years, the people you contracted with would still be able to give you the same price. We feel that a 10-year review cycle would give our members the certainty they need in order to do business internationally.

With that, I would like to thank the committee for allowing me to raise these issues, and I look forward to any questions you might have.

The Chair: Ms. Proud, thank you very much, and thank you for helping us with developing our report on the price gap. We spoke to the minister when he was before us in relation to this bill, and he indicated he would be continuing to work with the Retail Council of Canada. We asked if we could share in that, and he agreed that we could. That is to determine and trace whether the reduction in tariffs actually gets passed on to the ultimate consumer, and we had hoped it would. We look forward to working with you there. The broader scope you suggested will be taken under consideration. Thank you very much for that.

I will ask one point of clarification before I go to my list of senators who have indicated an interest in participating. Regarding the implementation date, you are talking about changes to the General Preferential Tariff and those nations that we have talked about here that would no longer be part of the General Preferential Tariff — that implementation would not happen now because of discussions you have had with the government until January 2015. Is that correct?

Ms. Proud: January 1, 2015, is what the minister has now announced, yes.

The Chair: How does that relate to the elimination of tariffs on children's clothing and athletic equipment?

Ms. Proud: It relates to tariffs in general, but the elimination of tariffs on baby clothes and sporting equipment are product-specific eliminations; we would like to see that expanded to cover all products. However, the General Preferential Tariff is a review of the country's eligibility for preferential tariff treatment, and when certain countries are removed from that list, the tariffs are likely to go up on products being sourced from them.

The Chair: Is it your understanding that the same date is the implementation date for the product-specific ones that would be eliminated from any tariff?

Ms. Proud: The product-specific date has already come and gone; that was in April.

The Chair: That was my understanding as well. I just wanted to get it on the record. There are two different things we are talking about here.

Ms. Proud: Yes.

The Chair: The public is interested in the elimination of tariffs, in part as a result of your submissions to our committee, our committee's report and the government acting on that.

Ms. Proud: Absolutely, and we are now engaged with the Department of Finance Canada on tracking the results of that elimination, which took place in April.

The Chair: We will look forward to working with you in that regard. Thank you very much, and thank you for the list of tariffs that you have provided to us. That has been circulated in both official languages to everyone.

We will now go to questions.

Senator Eaton: Mr. Bonnett and Mr. Laws, talking about agriculture, what about reciprocity? We are hearing a lot about free trade deals — the EU, Korea, Japan and potentially India and China down the pike. Do they treat us the same way we treat them, or will they?

Mr. Laws: I can start with that. Certainly, we hope that will be the case under the Canada-EU free trade agreement. We hope we will be able to get good access to Europe for pork and beef products; we do want that. We have tariffs on beef that they are interested in seeing eliminated, and so do they. Therefore, we have something to trade in that regard, and we hope that will be the case.

Canada is also currently in discussions with Japan. That is of great interest to us in that we have very good exports of pork to Japan, and we would like to see their tariffs reduced for our pork, as well as for our beef.

Senator Eaton: What about Brazil and China?

Mr. Laws: Brazil and China are a different situation. There are some issues that remain to be resolved with regard to animal diseases, et cetera, that are being worked on. We certainly know that they are a major competitor of ours in the world. For our products, we do not see Brazil as much of an opportunity, but for China we do.

Senator Eaton: Is it our regulatory system or is it the fact that some of our beef has hormones? Let us specifically talk about Brazil or China, if you could.

Mr. Laws: China has some requirements that we are constantly trying to meet. They also like to come and approve each individual plant. We are in discussion with the Chinese to approve all of Canada's plants to ship to China. That is important to us. They do not approve some feed additives that some farmers use to encourage growth that nevertheless do have an international residue limit that we meet in Canada. We are always trying to get them to refer to Codex standards to improve trade. We have very good trade with Japan, and they are a demanding customer. We hope to have a similar relationship with China because it is a huge opportunity.

Mr. Bonnett: You mentioned the whole issue of how we are treated compared to our competitors. I think tariffs are one aspect of the whole issue of competitiveness. Sometimes we get focused on the tariffs, but there are a number of other issues. Non-tariff and regulatory barriers are increasingly becoming an issue of concern. We still have issues with some countries —

Senator Eaton: On our side or theirs?

Mr. Bonnett: Mostly on their side. Canada has been upfront about approaching regulations from a science-based approach and ensuring there is a robust system for approval and verification. Some countries have a tendency, if they decide they want to put up a barrier, to come up with one. India is one country that uses that on a fairly regular basis, and it is one the challenges, even with Europe, in the negotiations that are taking place.

One other issue that has come up is the level of domestic support in some countries, and that is mostly an issue between Canada and the United States.

When you talk about competitiveness, it goes beyond the preferential tariff treatment. It goes into the types of trade agreements that are being negotiated on a bilateral basis. I think it also goes to the fact that in an ideal world we would have seen some progress at the World Trade Organization where they could have dealt with a range of issues, much broader than just tariffs, domestic support and enhancement and those types of things. When we enter into discussion about competitiveness and it goes down to the consumer level and getting value for what they are purchasing, we have to not only look at tariffs but also at some of the other issues.

Senator Buth: Thank you. I have similar question to Senator Eaton's for Mr. Bonnett in particular. You said you were generally in favour of the reduction of the tariffs, the GPT or the removal of the exemption essentially for Brazil, China, India, Argentina and Russia. Part of your recommendation was to look very carefully at how the tariffs were going to be applied. Can you give an example of what might happen if things were done carte blanche or what we need to look at?

Mr. Bonnett: It is similar to what was mentioned by Ms. Proud from the Retail Council. For some products, product-specific exemptions will be required because there is a limited source for them. One that comes to mind would be generic herbicides and pesticides. A number of those are brought in from India, and there is no domestic production in Canada. If they ended up with an increase in the tariff level, that would directly influence, increase cost on the Canadian producer side. You would have to take a look at some of the specific line items to look at product-specific exemptions because of what it would do from a competitive side.

On the other side, why we are generally in favour of it is that this is giving some of these countries an unfair advantage now because they have developed and robust economies.

Senator Buth: My next question is for Mr. Moffatt. Last December before the changes were announced in the budget, the government held an open public consultation on the GPT program seeking input on changes from experts like you and other Canadians. Did you make a submission on that?

Mr. Moffatt: No, I did not.

Senator Buth: You did not. Thank you very much.

Senator Hervieux-Payette: I need an explanation since I am the one doing the groceries. Why is the lamb from New Zealand so cheap compared to what we have in our country? They have to travel 10,000 kilometres, and as far as I am concerned it is frozen food, but I would like to have an explanation. Is it because the tariff is an advantage to them? Is it because we do not know how to produce lamb? Perhaps Mr. Moffatt or Mr. Laws could give me the answer. I cannot understand; it is almost half the price.

Mr. Laws: To give my opinion, I worked in New Zealand in 1981-82 on the International Agricultural Exchange after I graduated from the University of Guelph. I worked on a dairy farm in North Island, New Zealand. They have a very big competitive advantage in New Zealand. They can grow grass very well and have low-cost production, but they also have an advanced meat processing industry. They have developed technology so that meat can last. Fresh meat can be shipped all the way from the New Zealand to Canada and still have a good shelf life. They have good quality. They have developed a world-class industry. They do not have snow, and so they have a lot lower costs. The animals are always outside. They are very good at what they do.

Senator Hervieux-Payette: The tariff does not have anything to do with that?

Mr. Laws: Well, no. Canada does have zero import duties on lamb, I believe, for all countries of the world. Canada also has 0 per cent import duties for pork, and last year Canada exported $3.2 billion worth of pork to over 125 different countries. Canada, like New Zealand, is a world leader in the production of pork, and we are very good at what we do. We can compete in many countries for pork as New Zealand does with lamb.

Senator Hervieux-Payette: I have a bit of reservation because we hear people from Quebec, and last year it cost the taxpayer $450 million for this pork. Yes, we sell a lot, but sometimes we sell almost below the cost of production, which is of concern to me if we are going to compete. I have been told that some European countries are producing for less, have a better result with the production of having more little pigs, and they have the same climate. They have snow in the north of Europe, and they produce at far less without any support.

What is the problem with our industry in terms of costs? You talked about chicken and turkey where we have the big tariffs, but on the other hand we hear that these two sectors are being supported by our competitors in terms of what they eat. Agriculture in general is subsidized to a much larger degree with our competitors. Maybe you or Mr. Moffatt can explain it to me. When you compare something you have to compare all the way through — the cost of production, the help from the governments — so we are concerned with what is happening with the EU discussion. However, we have the feeling that either it is the consumer subsidizing by buying at a higher price or the farmers are receiving help to produce at a lower cost. Who will establish what is a fair deal?

Mr. Laws: That is a good comment, and certainly the Canadian negotiators make those comments to the Europeans in negotiating specific access to their market for pork. They have relatively high import tariffs, and we want them to eliminate their import tariffs on pork as well so we can compete fairly. You are absolutely right.

Mr. Bonnett: My comment goes back to the answer I gave earlier that tariffs are just one aspect that has to be looked at when you are talking about competitiveness. The regulatory system is definitely something that needs to be looked at, as well as environmental standards and animal care standards. There are a number of different issues that can drive additional cost into Canadian production.

In the example given by Mr. Laws, he did a very good job of outlining how New Zealand has a definite competitive advantage because with year-round grass they do not have to put up stored feed buildings, and that gives them a competitive advantage. However, I would still encourage you to buy Canadian lamb even if it is a little more expensive.

Senator Hervieux-Payette: The one in Quebec is the best; I agree with you.

The Chair: New Brunswick has good lamb too.

Mr. Bonnett, you talk about the competitive advantage from production, but they also have shipping costs that the Canadian companies do not have.

Mr. Bonnett: It is interesting when you mention shipping. Previously I was the president of the Ontario Federation of Agriculture, and at the time that BSE hit the country I was president. I worked with a group that was looking at what it would cost to ship beef in a container to South Korea at that time. When you put a bunch of product in a ship, in a refrigerated container, the cost is pennies a pound to ship. The volume is so great on a big ship that sometimes you think it must cost a fortune to ship it that far, but sometimes we spend more in fuel going with our SUV to pick it up at the local market than what it costs to bring that whole package in a boat. That is one of the things that occasionally get lost in the discussion.

The Chair: That is a good point; thank you.

Senator L. Smith: Ms. Proud, how do you see your relationship evolving with the government, and then how do you see your relationship evolving with your retailers to track the benefits of the implementation of these policies that were made recently? Could you give us a background of how you developed your additional list? What do you see as a potential dollar benefit, if you have done any economic assessment?

Ms. Proud: We submitted a proposal for this pilot project to the Department of Finance while this committee was undertaking its study into the difference in pricing between Canada and the United States. What ended up in the budget is a portion of what we had asked for as part of that pilot project, which I guess is to be expected. However, it included what we had asked for, which was sporting goods and children's equipment.

Since the announcement we have been working closely with the departmental officials, as they are right now in the process of designing the study that they will put into the field in the next couple of months to look at the potential changes in the marketplace. We had cautioned them that a change will not happen overnight because at the time the tariffs were eliminated in April retailers had warehouses full of stock. It is likely only until there is a replenishment of that stock or a new seasonal buy of product that you will start to see some of these changes being passed along.

We have identified a number of our retailers who will be participating in this study. I know the government has recently gone out with a request for proposals and is just finalizing the study now. We are very much in collaboration with the department because it is in our best interests to be able to demonstrate that the savings will be passed to consumers. I have put them all on notice already that we are going after a big ask and a larger ask for next year's budget.

When it comes to our assessment of the benefit or the impact, we have not yet seen the changes we would need to be able to even start that assessment. We are going to be relying a lot on our work with the Department of Finance to see how the savings are being passed along. We are going to be able to provide a lot of anecdotal information as the time comes. It is too early to say what the economic impact of those changes has been and will be but we will certainly track it as it is in our best interests.

Senator L. Smith: Was this additional list part of your original submission?

Ms. Proud: Yes, it was part of our original submission. I cannot say every line item was because we spoke about categories of products to the department. It was after they announced the complete list of tariffs that our members went back. As I mentioned, the Customs Tariff is 1,400 pages long, and they went item by item to try to find if there was anything missing like the hockey helmets, which were identified as missing and have since been added to the list. We have provided this list to the department and are hoping to have further discussions on including those items if they do not get included at this stage of the review of the bill.

Senator L. Smith: You commented on the lifting of the General Preferential Tariff. What were you alluding to when you made the comment? You said there are certain things you would like to see happen within the changes in terms of moving forward. What would your next anticipated step be in dealing with China or India or one of the major countries that was part of the GPT?

Mr. Laws: We did state that we do believe that the list should be reviewed, and we support the list being reviewed every two years as we believe is the government's intention. That then gives us the opportunity to negotiate with them because we also support elimination of all tariffs, but we want it to be reciprocal on both sides.

These are very large economies now. At the time, in 1974, they were developing countries, and I think it is a great that Canada does extend it to those who are still eligible for that classification. If you go through all those 1,400 pages, we support all of them being gone to zero because we believe that is the best for the whole world economy in trade.

Senator L. Smith: Would you wish to comment on our supply system in terms of EU negotiations? Do you have insights on that one?

Mr. Laws: Again, with pork that is the way it is, but Canada has already zero tariffs, so we would tell the Europeans that we want fair trade. Since they can export as much as they want to Canada, it is fair that they should reciprocate. We believe fair is fair; it is only logical. That is not much of something to trade in that regard. On beef, we do have a 26.5 per cent tariff. They have a higher tariff, and we also are prepared to eliminate those tariffs on beef, as we have done with Mexico, the United States and a few others.

The Chair: I believe we did that through the North American Free Trade Agreement.

Mr. Laws: Correct.

Senator Callbeck: Thank you to the four of you for your presentations.

Ms. Proud, on this list that you have given us, why do you have these particular items and not others? I think you said you would like this list if they were not manufactured in Canada. Would you comment on that?

Ms. Proud: With regard to this list, when the minister announced an elimination of tariffs on sporting goods, we see that this list represents sporting goods that were left off of what has been eliminated. Where there is no domestic or very little domestic manufacture, we would like to see all tariffs eliminated. We started as a pilot project because we felt that was the best way to demonstrate that the savings got passed along with baby clothes and sporting equipment. Of course our position would be to expand that to a much larger pilot project. However, in the short term, at the very least, we would like the addition of the rest of what we would consider products under sporting equipment to be included in the elimination that was announced.

As a specific example, when it comes to the sport of soccer, the most expensive piece of equipment are the soccer shoes, but those are not included in the list of tariffs that were eliminated.

As I said, we have a further list that we feel is the comprehensive list of sporting equipment, and we have provided that to the minister's office.

Senator Callbeck: Are any of these items manufactured in Canada to a large extent?

Ms. Proud: Of all the ones we have provided, I do know there has been some debate around bicycles. I have had some discussions with the departments on the fact that there is a small bicycle manufacturing business in Canada and that it is at risk. Our position has always been that we do not want to affect domestic manufacture but that we would like these items to be considered. Aside from bicycles, there is very little on this list that has any domestic production whatsoever in Canada. Specifically, we know that in the area of footwear generally, it is just not manufactured in Canada anymore.

Senator Callbeck: I do not know whether you said it, but the Retail Council of Canada is on record as saying that eliminating the preferential treatment of tariffs will mean a 3 per cent increase on goods coming from the affected countries.

Ms. Proud: The difference between the General Preferential Tariff and the Most-Favoured-Nation Tariff is about 3 per cent to 3.5 per cent. If retailers are unable to find other sources for their products, then for those products coming from the GPT nations that are coming off the list, there will likely be a 3 per cent increase in the price of those products for retail. However, there are a lot of "ifs'' around that; it is if they cannot find other sources or if they cannot negotiate different deals, but on average there is about a 3 per cent difference between a GPT tariff rate and a Most-Favoured- Nation Tariff rate.

Senator Callbeck: Have you done any work on what that might mean to an average family of four?

Ms. Proud: We do not have the resources to do that sort of economic analysis. What we are doing right now is trying to identify those products for which we really think there are no other sources and for which it will really have an impact because it is a widely used product. We are trying to identify right now the list of those products for which we can talk to the government about some exceptions to some of these changes, or longer implementation for some of these changes, so that we do have a minimal impact on the Canadian consumer.

Senator Callbeck: Mr. Laws and Mr. Bonnett, you both support what the government is doing here. What is the bottom line for a Canadian family of four? Will this affect the price of their food bill?

Mr. Laws: We do not believe it will. We looked at the meat items specifically, and we do not believe there will be any effect from this particular action. There were no General Preferential Tariff advantages in any of the meat categories, so nothing would change in that regard.

Mr. Bonnett: I would agree on the meat side, but recognizing that we said there may be some line items that we would want to consider whether or not we eliminate that tariff on those. The one example I gave was crop-protection materials possibly coming from India, and we may want to have a specific exemption on those types of items, again with the goal of trying to keep our competitiveness.

Senator Callbeck: Mr. Moffatt, you talked about who might gain here, whether it is the consumer, the retailer or the wholesaler. You said that mainly that will depend on competition.

Have you looked at any other countries that have done this? What is happening there?

Mr. Moffatt: I am not aware of any. One of the valuable things that Ms. Proud and the government will be doing is that there are not a lot of studies out there about what happens to retail prices, particularly when tariffs are lowered. In my example, I used sales taxes. When sales taxes change, you tend to have a one-to-one change on prices. There are very few studies on tariffs and what happens to retail prices there.

One of the real benefits to this test case is that economists like me will have a lot of new data to play with. I am hoping to get a couple of academic publications out of this. On a personal level, I am quite delighted by this change.

Senator Callbeck: Do you look upon the tariff as a tax?

Mr. Moffatt: Essentially, yes. It is a tax paid for by the importer; however, the importer will pass some of that along. Depending on market power, it could be passed along either upstream or downstream. Absolutely, at the end of day, it is a tax.

Senator Callbeck: Do the other three feel that way?

Mr. Laws: As I mentioned earlier, at the Canadian Meat Council, we certainly support the elimination of all tariffs. We are free traders and we believe that is an eventual goal to reach.

Senator Callbeck: Do you look upon a tariff as a tax?

Mr. Laws: I suppose we have never really thought about it that way, but I suppose when the tariff is collected, it goes to the Government of Canada. It sounds like a tax.

Mr. Bonnett: I think it could also be viewed, though, as a bit of tool to help bring some discipline into the market. I mentioned earlier that there are other factors. There is domestic support and there are non-tariff barriers. It is a tool that is sometimes used as a balancing agent to help ensure we do not get completely thrown to the wolves when it comes to trade.

Philosophically, we would agree that the elimination of tariffs could be a good thing, provided some of these other things are dealt with. In this case, though, specifically the preferential tariffs for the specific countries that have become, in effect, developed countries, they should not have an unnecessary advantage.

Ms. Proud: We have called it a tax in public documents, and our retailers certainly see it as a tax. It is an additional fee that is imposed on the products they buy. Call it what you will; we would like to get rid of it.

[Translation]

Senator Bellemare: I will continue along the same lines. With respect to removing the notion of tariffs, or by looking at the list you submitted to us, Ms. Proud, are you aware of how much government revenues will decrease because of this list you have proposed? Would you have an idea of the total?

[English]

Ms. Proud: We have not done the assessment of this particular list. I can tell you that on our first proposal for the pilot project, which was well expanded beyond what we got, I was told by the Department of Finance it represented over $700 million of annual revenue. We were rather ambitious in our ask, I guess. They narrowed it down to $72 million with what they have given us, for which we are grateful to be able to do this pilot project. I would suspect that what we have on this list is fairly marginal, until you start going into some of the athletic footwear. While there is almost no domestic manufacture, it represents a large revenue stream for the government, but they would be best placed to speak to the exact numbers.

[Translation]

Senator Bellemare: I will continue along the same lines. My question has to do with balancing the budget. In the short term, if we had granted your request and you were briefly wearing the shoes of the Minister of Finance, what would you have suggested as an increase to balance the budget?

[English]

Ms. Proud: We certainly believe that the elimination of tariffs will keep Canadian dollars in Canada and will keep Canadian spending in Canada, where we are currently seeing an increased flow across the border. Right there, in taxes collected, although we do not have the resources to do the math, I suspect that makes up some of the revenue that the government would be losing from the tariffs. I believe that in the minister's own words he said he is willing to look at far more elimination. I think it is right now in our hands to prove that the savings will get passed to the consumers; and then, as I keep threatening, we are going after a much larger ask come next year's budget armed with the evidence to be able to say that now it is clear that the savings get passed to consumers.

We did not offer up any solutions to the budget, but we do feel that money would remain in Canada, whereas it is currently flowing across the border.

Senator Bellemare: I think you have a good answer.

[Translation]

Mr. Laws: Another question we should also ask ourselves in my opinion would be: what does it cost to government to employ all the people hired to collect these fees? Earlier, I heard someone else say that if Canada eliminated all this bureaucracy, substantial costs savings would result.

Senator Bellemare: If my memory serves me, I think the total in the report we submitted for all of the tariffs is at least three billion dollars, not six billion. That is what I was trying to find, it is in our report, we had witnesses testify about that. It represents at least three billion dollars of lost revenues for the government.

There is no doubt that with liberalization, economic activity increases, the money flows in and that is good for everyone. However, in the short term, strictly from an accounting point of view, a Minister of Finance who is trying to balance budgets must continue to function. That is probably why the correct approach involves transition periods. One cannot make such changes overnight.

[English]

The Chair: We will have to check on those numbers, because I think Ms. Proud indicated that about $72 million was the government estimate for the reductions.

Ms. Proud: Yes, $72 million. For the elimination of the sporting equipment and the baby clothes, they estimated that would be a loss to them of $72 million.

The Chair: Mr. Moffatt, you estimate that moving those countries out of the preferential and into another would result in how much more going to the government?

Mr. Moffatt: It was actually based on a government press release, and they estimated somewhere in the $330 million to $350 million range. That is the government's estimate, but if I do a back-of-the-envelope calculation, I get roughly the same thing.

The Chair: Okay. That may be of help to Senator Bellemare in terms of numbers.

[Translation]

Senator Chaput: I do not think you have an answer for me, but I will ask the question nonetheless; it supports senator Callbeck's question.

By eliminating these tariffs, do you not believe Canadian families will have to bear increased costs? I am trying to understand how this will work. Are there not certain products, certain sectors, I am not certain what the right word is for them, for which families will pay more rather than less?

[English]

Do you not think so?

Ms. Proud: The simple answer is yes. With the changes to the GPT, as I mentioned, with some products where there are no other sources but those countries that have been eliminated, there will likely be an increase in price.

There are also effects of changes to the General Preferential Tariff, which is only about a 3 per cent difference between the GPT and the Most-Favoured-Nation Tariff. There is a trickle-down effect on a Least-Developed Country Tariff list — other countries that benefit from a zero per cent tariff treatment. If inputs to the products they produce come from now the countries removed from GPT, those products could potentially no longer be eligible for a Least- Developed Country Tariff treatment and could go from a current duty-free status to as much as 18 per cent.

It is the trickle-down effect that our members have the most concern over, because the tariff difference goes from, at present, duty free to as much as 18 or 20 per cent.

Senator Chaput: How about electronics?

Ms. Proud: We have not looked at specific product areas. We are in the process of trying to get a better sense. I do not know if my colleague can speak to that.

Senator Chaput: I will just give an example. You look at Canadian families nowadays, and at kids going to school. They all have cellphones. That is a substantial cost to families now, but it is a life thing. How about electronics?

Mr. Moffatt: I can speak to that. I believe there are no changes to cellphones. There will be changes to things like iPods, MP3 players and televisions, depending on whether those items are eligible for Code 9948 tariff protection — but that is a whole hornet's nest we could get into.

As far as kids go, some of the ones I would be more concerned with are bicycles, wagons, school supplies, pens and things like that. The tariffs for those will be increasing due to this GPT change.

Mr. Bonnett: I do not know if you can just directly say that prices will increase. As was mentioned, if you can source from other countries that are still on the preferred list, then the price might stabilize.

I think we have to go back. In 1974, this was put in as a tool to assist those very poor countries to build their economies. If you look at Brazil, India and China, they are not what you would call very poor countries anymore. Therefore, if it is still to be used as a tool, then that tool, with the extension for another 10 years, is still there.

We may not be able to draw a straight line between the changes that are proposed and increased cost to Canadian consumers. It depends again if you are able to source those products from another source.

Senator Chaput: I understand, but you cannot say that there will not be an effect.

Mr. Bonnett: No.

Senator Chaput: Exactly. Thank you.

[Translation]

Mr. Laws: My personal opinion is that many Canadians also know that there will be many sales over the course of the year, during which a product may be sold for half price. There are many such occasions during which Canadians can expect to see products on sale. However, for essential items such as food, meat, we believe there will no effect on prices for Canadians.

[English]

Senator Wells: I have questions for Mr. Laws or Mr. Bonnett — whoever is better suited to answer.

First, is beef the largest meat export from Canada?

Mr. Laws: It is not. In fact, last year we exported some $1.2 billion worth of beef but $3.2 billion worth of pork. Pork has exceeded beef by far for many years now.

Mr. Bonnett: We are trying harder.

Mr. Laws: I agree. We are all trying to expand markets, and regain markets that were lost.

Senator Wells: That is recognized.

With respect to pork, what would be the split between domestic and export sales?

Mr. Bonnett: I think it is about 60-40, with 60 per cent as export and 40 per cent domestic. You have to remember that some of these products move across the American side and they might come back in.

Senator Wells: Right.

I will get your help on this: The tariff goes down, so the end price goes down. Therefore, demand will increase, and with that increase in demand the price ticks up. Is that essentially the benefit?

Mr. Laws: We are just saying how in fact a lot of the products coming into Canada are duty-free. Pork, again, is duty-free access for Canada.

What is important to Canada's meat industry is to have as many markets open around the world, because different markets value different parts of the animal, and pay more for different parts. They value them more than we do. It is great if we can sell the parts to the highest bidder; that is where we can help ensure we get the most profits and revenues back to farmers.

The Chair: I have no other names on the list, so I will ask a couple of questions just to help round out my understanding.

For many years, we worked under a negotiation and General Agreement on Tariffs and Trade and WTO, World Trade Organization, to try to have a global multilateral agreement with respect to reducing tariffs. The effect of that would be, if we were part of it and all these other nations that sign up, we would reduce our tariffs, but we would get a corresponding reduction in tariffs. Canada would increase its opportunities to trade with other nations. Since that did not work well and we seemed not to be able to finish up the Doha Round of negotiations, we moved into a lot of bilateral agreements. Those bilateral agreements that Canada and another country would enter into again provided an opportunity for Canadian producers because it would reduce the tariffs of that other country and we would reduce our tariffs correspondingly. When we give up on a tariff protection, the other country does too.

We are now just talking about reducing tariffs, but we are not talking about what we are getting for it. Am I wrong in that? When we reduced the tariffs on children's clothing, for example, and athletic equipment, did we negotiate something in return for that? Are we aware of that?

Ms. Proud: One of the things I mentioned to the House of Commons Finance Committee when I presented on the budget a couple of weeks ago was a desire from our side, from our members, to understand or to get a position on the tariffs from the government as to whether or not these were meant to protect Canadian domestic manufacturers or whether they were to be used as a negotiating tool in trade agreements. If it is the latter, that is fine, but then it is important that the government make that clear. If it is the former, which we until this point have been led to believe, then we feel that our position of eliminating any tariffs where there is no domestic production makes a lot of sense.

The Chair: Yes. There are two possible policy reasons for having these tariffs, and you have to get to the basis of what the policy reason is first and then you can start talking about reducing.

Do we know, with respect to these particular items that have been reduced, if there was anything that Canada got from other countries in exchange for reducing these, or is this a unilateral move on Canada's part?

Ms. Proud: I do not believe there was any quid pro quo for these particular tariff reductions. In our understanding, that is because the government sees them as part of an outdated system to protect domestic manufacturing that no longer exists.

The Chair: There are still lots of negotiations going on. If the policy reason for having these is to give you something to trade away, then there might be a reason for keeping some of these.

Ms. Proud: Absolutely. As I said, we would just like to make sure that everyone is clear about what the reason is for keeping the tariffs so that Canadian consumers understand they are subsidizing the trade negotiations for as long as they take before those tariffs are eliminated.

The Chair: Mr. Moffatt, do you have any comment on that, or Mr. Bonnett or Mr. Laws?

Mr. Moffatt: I would agree that no one is talking about just a wholesale unilateral elimination of tariffs. One thing we have to be careful of is that a lot of these tariff increases are on countries such as Russia and Brazil where we do not have any ongoing trade negotiations or, as far as I can tell, any plans to have trade negotiations. If the GPT increases are a way to get trade negotiations happening, then I would have to support that. I think that would be a good thing.

Mr. Bonnett: I would echo that what we are seeing with the general preferential treatment changes and reductions on specific items is bits and pieces of meeting policy objective. It is not part of a negotiation where you are taking a look at what you can offer and what they can offer. I think that is why it is extremely important not to completely give up on WTO. We still have to keep pushing there, because there is not only the negotiating framework role but also the fact that WTO does act as sort of an arbiter in resolving some of the trade disputes. More important is to keep aggressively moving ahead with some of the bilateral deals. One of the ones that would affect some of the discussions on the general preferential treatment would be discussions taking place now with India, which is a huge market, but there are a number of issues beyond tariffs that have to be dealt with when we deal with that, and that gets into a negotiating framework.

These are bits and pieces that are not part of a negotiating framework, but it is increasingly important to make sure that as many of these as possible be dealt with in a negotiating context so we have an awareness of what we are giving up and what we are gaining.

Mr. Laws: I would comment briefly that, at least at the World Trade Organization, we certainly supported that process as well, because that is where export subsidies are dealt with much more readily than bilaterals. On the other hand, when Canada some years ago eliminated the import tariffs on manufacturing equipment, that unilaterally did help Canada to become more competitive and productive, so that was appreciated nevertheless.

The Chair: You made a comment during your presentation, Mr. Laws, that you fully support the Government of Canada in its efforts to eliminate tariffs by opening more markets to our goods.

Mr. Laws: Correct.

The Chair: Eliminating tariffs brings more goods in here, but it does not help us sell more goods.

Mr. Laws: It does through reciprocal arrangements. We will eliminate ours if you eliminate yours.

The Chair: That is the point I was trying to make. There has to be some reciprocity or the effect could be the reverse.

Mr. Bonnett, you talked about the recovery costs. You were going through a number of items that you approved of in Bill C-60, and one of them was that you would like to see industry labour task forces be adequately consulted on developing cost-recovery fees. That is with respect to foreign workers and going through the test and the expenses the potential employer has to go through in order to qualify these people. You would like to see these industry labour task forces consulted. Are you aware whether there has been any consultation?

Mr. Bonnett: I know the reports have gone in. A number of the industry task forces have put reports in, but there has to be some back and forth with those industry task forces because there has not been any definite decision yet on what the level of some of these fees will be.

The Chair: You are aware of the User Fees Act. That was a piece of legislation that Parliament passed a while back to make sure that what the government departments could charge for a service did not exceed the actual costs of performing that service and that it did not become another revenue source for them above and beyond that. That is being eliminated with Bill C-60. Were you aware of that?

Mr. Bonnett: No, I was not aware of that. The other side is that is that if government is providing a service, they have to make sure they provide it in an efficient manner as well.

The Chair: I agree wholeheartedly with that. You may want to focus on that other issue. Were any other panellists aware of the request to eliminate or exempt the User Fees Act?

Mr. Laws: It was, in fact, on the Temporary Foreign Worker Program that Bill C-60 would give the government the authority to be exempted from the act for the temporary foreign worker permits. We expressed some concern with that at the House of Commons Finance Committee as well. That is the case.

The Chair: You expressed what?

Mr. Laws: We expressed concern that we do not believe any government fees should be exempt from the User Fees Act.

The Chair: I share your view, but I have not had an opportunity to discuss it with people who are actually in the business, so I appreciate your comments in that regard.

I understand that Mr. Laws and Ms. Proud have an interview on the house side. We would be pleased to allow you to go to that interview now. If Mr. Bonnett and Mr. Moffatt could stay for a few minutes longer, I do have one other senator on the list.

Thank you, Ms. Proud. We look forward to seeing you again.

Mr. Laws, thank you for being here.

Mr. Laws: It was our pleasure.

Senator Callbeck: I have a brief question.

Mr. Moffatt, you mentioned the study that this committee did on U.S. and Canadian prices. Doing away with preferential treatment for certain countries will increase tariffs and likely increase prices. In your opinion, will this send more Canadians than ever to shop in the United States?

Mr. Moffatt: Absolutely. If you believe the government's estimate that this will raise tariffs by $350 million per year — and that is their estimate, not mine — those will be passed along to the consumer, and those price differences will incent more consumers from my area, southwestern Ontario, to go to places like Detroit and Port Huron to get their goods.

Senator L. Smith: Mr. Moffatt, if you were a policy adviser or decision maker and you were dealing with a country like China or India that was subject to GPT since 1974, would you have just let them continue, recognizing that China's economy is four times bigger than Canada's?

Mr. Moffatt: No, not at all. This move was overdue 20 years ago. The harmonization is absolutely needed, but all the harmonization involves taking things from the lower tax rate and putting them up to the higher tax rate. What could have been done is to find areas where it made more sense, because of the price gap, to lower the MFN rate to the GPT rate, therefore getting harmonization.

The question is not whether China should be harmonized with Japan and Taiwan. They absolutely should. The question should be how we can best harmonize those rates such that we do not do undue harm to Canadian consumers or to the Canadian retail industry.

Senator L. Smith: You talk about China and India. China would obviously ship a lot of product into the U.S.; the U.S. would manufacture or assemble and then sell it to Canada for a higher price. We gave China a deal 30 years ago and now they are so much bigger. It is more of an indirect shot through the U.S. into Canada. I just want to ensure that people understand that if there is an increase it is not necessarily because the U.S. is increasing but because the relationship with China has changed due to their economic power.

Mr. Moffatt: Absolutely. It makes no sense to have countries like China and South Korea on a list of developing exporters. They are fully developed now and should be treated as such.

Senator Hervieux-Payette: Maybe you have an idea of how we could deal with the problem of China and India with regard to safety measures. There have recently been hundreds of people killed due to lack of security in plants there. Perhaps we could give different rates if they respect codes set by the United Nations or the International Labour Organization. We seem to benefit from very low prices, but we should add the cost of the lives of workers.

How would an economist taking people into consideration help to remedy this tragic problem?

Mr. Moffatt: I think you would have to do that through regulation. The tariff code is probably not the most appropriate way to do that. Changes to the tariff code may in fact have a bit of a perverse incentive in that area, since we are raising the tariff on India but keeping the Bangladesh tariff very low. These very Least Developed Country Tariffs are not changing at all, which could cause importers to go to some of the countries that have notoriously bad safety records. I am not sure if this change will, on net, get us sourcing from more safe or less safe areas. I do think this is a concern, but I think there are better ways of dealing with these safety concerns than through the tariff system.

Mr. Bonnett: On your comment about how to deal with it internationally and also the comment made about cost to consumers in cross-border shopping, this was put in in 1974 by the G7 and other developed countries. It would be appropriate, when changes like this are being made, to try to build international support for all taking the same step in tandem. In that way it does not create an artificial difference between us and the United States, for example. I think we would find that a number of other developed countries would have the same concerns that we have about where the economies of China, India and Russia have gone.

There is a need to look at these types of changes from an international perspective. If all the G7 or G8 countries were to take a similar approach, it would remove some of the differences that would cause the cross-border shopping that you were talking about.

Senator Buth: We did receive information on other countries, and other countries have moved years ago, essentially, to remove these countries from the GPT.

Mr. Bonnett: We are coming in line.

Senator Buth: We are finally coming in line.

The Chair: We talked earlier about policy reasons for tariffs, and another one that was clear in the report we generated on price gaps between Canada and the United States is to give the Canadian consumer a break. That is another one that we must not lose sight of when talking about different policy reasons for having these or for removing them.

Mr. Bonnett, this was Mr. Laws' submission, but could you confirm that, other than beef coming in from other countries with which we have a bilateral agreement, inputs of beef are 26.5 per cent?

Mr. Bonnett: There are tariffs on beef coming in, but there are tariff rate quotas that allow a certain amount of product to come in.

The Chair: There is a 76,000-tonne duty-free quota. How does one get on that quota?

Mr. Bonnett: That is negotiated.

The Chair: You have to negotiate. At 26 per cent it sounds like we are really trying to protect that industry.

Mr. Bonnett: When you get into trade discussion, every country in the world has an offensive position and a defensive position. Going into these kinds of discussions, we have to negotiate where we are going to come out. In one of your earlier questions you talked about what we get in return. The core question that everyone has to ask when going into trade negotiations is how we negotiate something that is a net benefit to us, because everyone else at the table is doing it the same way.

Years ago it was said that Canada always wanted to be the Boy Scout, but from a business perspective we cannot afford to be Boy Scouts. We have to be tough negotiators and ensure that we get something in return for anything we are giving out.

The Chair: We had mention of protecting our production in certain areas. The import duty with respect to poultry is 238 per cent. That shows that we are trying to protect that industry, I would assume.

Mr. Laws: When you get into this discussion, as I mentioned earlier, especially with some agricultural products, you have to recognize that it is not just about tariffs. We are sitting beside the United States, which has another American farm bill going through that vastly subsidizes their farmers. In an ideal world, they would eliminate their domestic support, and then we would not have the fear of unfair competition.

It is interesting that in the fiscal cliff discussion that took place in the U.S. early last year one of the first things they approved was extending a milk support act that was based on a 1914 pricing of milk adjusted for inflation. We must not get caught up in the idea that we are putting barriers in place thinking that everyone else is playing fair. If they are funding huge amounts through their taxpayers, we cannot just throw our producers out at the jeopardy of something like the U.S. treasury. It boils down to ensuring that we understand what we are dealing with when we are in negotiations and not giving away something that could jeopardize our sector as well.

The Chair: The example of not having tightened up that agreement as much as we would have liked would be softwood lumber.

Mr. Bonnett: That would be good one.

The Chair: That is a good example to end on.

I would like to thank Mr. Bonnett and Mr. Moffatt for being here, as well as Ms. Proud and Mr. Laws, who had to leave earlier. Thank you for reviewing the proposals in Bill C-60 with us and helping us to understand how they impact the industry.

(The committee adjourned.)