AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, December 2, 1997

• 0906

[English]

The Chairman (Mr. Joe McGuire (Egmont, Lib.): I see a quorum, so I'll call the meeting to order.

Before we start today's discussions, the biotech session is coming together pretty well, but I just want to remind you that this Thursday we have to be out of this room at 11 a.m., so if we can start right at 9 o'clock to hear the witnesses and ask them questions, it would be appreciated.

The minister will be here Wednesday, December 9, between 12 noon and 1.30 p.m., in the Railway Committee Room. That session may be televised; we're not sure yet.

I'd like to welcome this morning Mr. Gifford again. I guess we're going to see a lot of you in the next while.

Mr. Mike Gifford (Director General, International Trade Policy Directorate, Department of Agriculture and Agri-Food): For better or for worse.

The Chairman: First of all, is the committee agreed that staff can remain, or should staff go?

The Clerk of the Committee: It's an open meeting. In camera will be afterwards.

The Chairman: So there's no problem with staff staying and taking notes?

[Translation]

Mr. Jean-Guy Chrétien (Frontenac—Mégantic, BQ): Mr. Chairman, I would like a clarification. We are to meet with the minister on December 9, but that is a Tuesday, if I'm not mistaken, not a Wednesday.

[English]

The Chairman: Okay, then it's Tuesday.

[Translation]

Mr. Jean-Guy Chrétien: If it were on the Wednesday it would be the 10.

[English]

The Chairman: I had it in my mind it was Wednesday.

So is it okay if staff remains for this upcoming discussion?

Some hon. members: Yes.

The Chairman: Welcome, Mr. Gifford. The committee is interested in knowing what's going on at the next round of trade discussions, which I think is scheduled to begin in 1999.

Mr. Mike Gifford: That's correct.

The Chairman: I guess other countries are getting ready and Canada is too. If you could just give us an update on what our government and our department are doing, we'll take it from there.

Mr. Mike Gifford: Thank you, Mr. Chairman and honourable members.

I've given to the clerk a deck that we've used to brief the private sector on the preparations for the next round of negotiations. I've taken the liberty of having that circulated to you.

At the end of the last round of GATT negotiations, the so-called Uruguay Round, there was a built-in commitment to resume negotiations in late 1999. The agricultural sector and the services sector are the only two sectors to have built-in commitments to resume negotiations by a fixed date.

• 0910

Just before getting into the description of the process, let me just say that I think most people would agree that the Uruguay Round of GATT negotiations represented a watershed in the way governments dealt with agriculture. Between the time the GATT was formed in 1947 and the end of the Uruguay Round negotiations at the end of 1993, agriculture basically was regarded as too politically difficult to deal with. All sorts of special exceptions and special rules were introduced in order to deal with the politics of agriculture, and the bottom line is that we had anarchy in agricultural trade. There were no rules. Basically there were exceptions to the rules and the exceptions exceeded the number of times that the rules did apply.

Certain countries had certain exceptions. For example, the United States was allowed to apply import quotas. When Switzerland joined the GATT, basically it excluded its agricultural sector. Canada, when it joined the GATT, excluded certain measures. So the bottom line is that the rules did not apply equally to all. The watershed that was represented by the Uruguay Round is that for the first time in the post-war period agriculture is now subject to the same rules: all countries are going to be treated equally. I think that is something pretty fundamental.

As I was saying earlier, there is that built-in agreement to resume negotiations in the fall of 1999. We expect that this would be preceded by a World Trade Organization ministerial meeting. The World Trade Organization is now the successor to the General Agreement on Tariffs and Trade. Working back from that, federal and provincial ministers when they last met in Trois-Rivières last July basically took a hard look at what we're going to do between now and the time negotiations resume in the fall of 1999.

There was a very broadly based consensus at the Trois-Rivières meeting that basically we should not be trying to prematurely establish a Canadian negotiating position for a negotiation that's not going to start until late 1999, and in all likelihood will not get down to the bottom lines until 2000.

There was widespread agreement with the proposition put forward by the federal government that basically what we should do over the next two years is to ensure that there is a thorough understanding of all the issues that would be under consideration in the next round. And to that end the federal government has been indicating to stakeholders, producers and processors that we would be quite prepared to assist in any way any stakeholder that wishes to have a workshop, a symposium, or part of their annual meeting devoted to basically discussing what are going to be the negotiating issues in the next round of agriculture negotiations.

We've already had a couple of such symposiums and workshops. In particular, the University of Guelph more than a year ago now, in conjunction with the Ontario Ministry of Agriculture, hosted a one-day symposium. More recently we've had a two-day workshop at the University of Saskatchewan in Saskatoon just a few weeks ago whereby the University of Saskatchewan and Saskatchewan Wheat Pool hosted a two-day symposium on, in effect, the negotiating agenda for the next round. We understand that next year, in 1998, the Quebec government and UPA are both proposing to hold workshops, and that the Government of Alberta is also proposing to hold a workshop.

I think what federal and provincial ministers of agriculture envisage is that after a series of symposiums and workshops there will be a major federal-provincial-industry conference, probably in the spring of 1999, that will try to bring together the discussions that have been occurring over the last several years. And basically that federal-provincial conference in the spring of 1999 will then provide a basis for federal officials to draft a memorandum to cabinet suggesting a proposed negotiating mandate, which would then be considered by cabinet, probably in the late summer or early fall of 1999.

• 0915

Again, to make the point, basically Canadian negotiators will need a negotiating mandate from cabinet for the start of negotiations in the late fall of 1999. Basically what we've been describing up to now is the process that the federal and provincial governments seem to be very comfortable with.

In terms of the substance, Mr. Chairman, there are going to be a number of so-called traditional issues that are going to be considered in the negotiations, together with some so-called new issues.

The traditional issues are those issues that were front and centre in the last round. They included market access, tariffs, non-tariff barriers, export subsidies and internal support. Those are sort of the troika, the three major issues that were considered last time.

This time, in addition to those three issues, we expect a number of other issues to come to the fore. Some are not yet clear. For example, as you're aware, the United States has initiated dispute settlement proceedings against Canada with respect to our export pricing for dairy products.

Probably a panel will be established and that panel will probably come out with a report some time in the middle of 1998. And it will be appealed by either party, so it will go to the appellate body. Therefore, the final report will come out probably in late 1998. That report will in effect provide the first jurisprudence on what constitutes circumvention of export subsidy commitments. So clearly, over the next couple of years there is going to be a series of events or issues that are going to mature and provide greater precision as to what the negotiators will actually start to sit down and do.

A new issue along the same lines is, for example, the whole question of biotechnology. As you're all well aware, the approval process for new biotech products in some countries is very much slower than in others. For example, in the case of Canadian canola exports to the European community today, we effectively cannot export any canola because the approval process for biotech products is so slow and cumbersome in the European Union. And because we can no longer segregate a genetically modified canola from the regular canola, we are no longer in a position to export canola seed to the European Union.

Yet another new issue that was not discussed in the last round to any substantive extent is the whole question of state trading. So for single-desk selling agencies on the one hand, like the Canadian Wheat Board, the New Zealand Dairy Board, the Australian Wheat Board and the so-called single-desk buying agencies such as the Japanese food agency and the Chinese state trading-importing agencies for cereals, some of the issues involve the whole question of whether or not single-desk buyers can circumvent access commitments. In regard to the issue of the state trading, the single-desk selling, the concerns being raised by the United States are about the activities of single-desk sellers.

I'll come back to all of these, Mr. Chairman, but suffice it to say that you will probably not get a very accurate reading as to the scope and scale of the next round until fairly close to the end of 1999, because so many of these issues are emerging and won't really be discernible much before the end of 1999.

The preparations that I've indicated will hopefully provide a basis for the Canadian stakeholders to thoroughly discuss the issue. For example, when we've been encouraging industry stakeholders to have these workshops and symposiums, we stressed that, for example, the grain industry should not simply invite grain participants to their conferences. We stressed that they should invite people from the red meat sectors and people from the supply management sector.

• 0920

Similarly, we've told the supply management sector that when you have a workshop or symposium in the next round, try to make sure you invite the other stakeholders in Canadian agriculture. In all cases don't invite just Canadians. Invite the Europeans, Americans and Japanese so that people will get a really good feel for where the various interests are coming from in the next round.

So that is the process. There is a preparatory phase already under way in Geneva, where delegations are basically discussing the issues on a non-committal basis. Some countries—in particular, the European Union, Japan, and Korea—have made it very clear that they're not prepared to discuss anything that is remotely considered to be a negotiation prior to the formal start of negotiations at the end of 1999.

But it has been agreed by WTO ministers that there should be a preparatory process put in place. Slowly but surely these discussions are starting to take place. Initially they're taking place on the whole question of market access.

The issue there is that when countries agreed to convert their import quotas to tariffs, many countries created so much so-called tariff rate quotas—the fancy name for two-staged tariffs—whereby so much tonnage would come in at a low-duty rate...and above that tonnage you would get slapped with a much higher duty rate.

When you administer tariff rate quotas all kinds of issues come to the surface. In effect, having access to these quotas can be a licence to print money. Therefore, in some cases countries have basically divvied up the available amount of access through the issuance of import permits.

The question is, who should get the permits? Should it be first come, first served? Should it be the historical importers of record? Should governments, in issuing these permits, take into account other considerations—for example, whether or not the import permits should be directed to, say, the further processing sector as opposed to the primary sector?

Should you be allowed to divvy up the tariff rate quota amongst supplying countries? If you're a traditional supplier, that's great, but if you're a new supplier just on the market, if all the available access is divvied up amongst the traditional suppliers, then you're on the outside looking in.

The discussions in Geneva have certainly brought to the floor that there's an awful lot of problems associated with administering these tariff rate quotas. That's one of the issues that for sure is going to be discussed in the next round. Clearly the key issue on market access will be this question: If you now have everything converted to tariffs, what should be the depth of cuts in the next round in terms of the tariffs, and over how many years? Where countries have tariff rate quotas, or two-stage tariffs, should this tariff rate quota be increased and the tonnage available at very low duty be increased by some percentage?

On the market access side those are some of the issues that will be coming to the floor. In terms of export assistance, export subsidies, I think it's fair to say that if one consensus in Canadian agriculture has already emerged amongst the stakeholders, it's the very firm opinion that the international community should finally ban export subsidies in agricultural products.

The industrial sector did this back in the mid-1950s, and we've been striving ever since to try to get the same for agriculture. We made a start for the first time in the Uruguay round, but as a major agricultural exporting country and as a major agricultural importing country—a lot of people tend to forget that we're also a major importing country—it's in Canadian agriculture's interest to see direct export subsidies provided by government once and for all be finally banned from international trade and agriculture.

On the question of internal support, although it's fair to say that overall agriculture has lagged behind the industrial sector in terms of liberalization over the post-war period, it's also fair to say that in agriculture, on internal support we've moved one step ahead of the industrial sector. We actually do have some disciplines on the use of so-called internal subsidies, domestic subsidies, in agriculture.

That reflected a recognition in the Uruguay Round that domestic subsidies, depending on how they're structured, can be almost as trade-distorting as direct export subsidies.

• 0925

The classic example of that was the way the European Union used to support its oilseed sector whereby there was a domestic subsidy provided to European oilseed crushers, but the payment of that subsidy was contingent on using European oilseed. Even though we had duty-free access for Canadian canola, the existence of that domestic crushing subsidy basically meant we were relegated to being a residual supplier.

In the Uruguay Round there was a recognition that governments were going to continue to support their rural sectors. It was acknowledged that there are ways of supporting your rural sectors that are less trade-distorting than the old style conventional support programs. The old style support programs are basically commodity-specific and tied to production, and at some time they generate either surpluses you have to get rid of with the use of export subsidies, or pressure to put in non-tariff barriers to protect your domestic market.

So more and more countries are moving toward providing so-called green support to their agricultural sectors. Green support is simply a term to say it is possible to define certain agricultural support programs that are less trade-distorting than others. There should be no reduction commitments on the support programs that are not trade-distorting. Where you should be reducing subsidies is for those programs that are defined as trade-distorting subsidies.

My last point, in terms of the traditional issues, relates to Canada's close proximity to the United States. Canada is probably relatively unique among many of the developed countries in its preoccupation with the use of countervailing duties. For example, when we had a tripartite stabilization program for hogs, we saw it precipitated a U.S. countervailing duty investigation and the application of countervailing duties or so-called anti-subsidy duties.

The upshot of that countervailing duty was that all of the government transfers, from both the federal government and the provincial governments, to domestic hog producers were completely nullified. In fact they were more than nullified by the U.S. countervailing duty, because it not only affected the price of hogs entering from the United States, because it's a tax at the border and we're on a net export basis, it reduced the price of every hog produced and marketed in Canada.

So one of the outcomes of the Uruguay Round that Canada fought for was agreement that if you have a green program it should not be countervailable.

Just turning very briefly to a couple of the new issues I've alluded to, clearly single-desk selling agencies and single-desk buying agencies are going to be discussed. It's fairly clear on the buying side what the problem is. If you're an exporter facing a single-desk buyer, you're concerned that the state trading importing agency not nullify its access commitments through the operation of state buying.

The issue is far less clear with respect to exports, single-desk selling. This is an issue that really hasn't been discussed in Geneva since 1947, when the GATT was first negotiated. It's only very recently in the last couple of years that the United States, in particular, has started to make an issue about the practices of the New Zealand Dairy Board, on the one hand, and the Canadian Wheat Board and the Australian Wheat Board on the other. It is alleging that single-desk sellers somehow represent an unfair advantage over those countries that used to use the private sector to market their products.

The Canadian reaction to that is that so far all we've heard are allegations and concerns that a single-desk seller can potentially have this advantage or that advantage over the so-called private sector marketing systems. But only in the last couple of weeks has the United States actually put into black and white a paper that sort of summarizes its concerns. It was tabled in Geneva in this preparatory process. But even in this issue paper it is far from clear exactly what the United States thinks the real problem is. It talks about lack of transparency and single-desk selling agencies. It says that somehow a single-desk selling agency should report on a transaction-by-transaction basis exactly what it sold, at what price, and to whom.

• 0930

We would argue in return, Mr. Chairman, that a private sector trading company like Cargill or Continental or Dreyfus certainly is not obliged to report on a transaction-by-transaction basis the details of its sales.

To summarize this issue, certainly from a single-desk selling agency's point of view, we and the other users, single-desk sellers, would not want to be put at a competitive disadvantage vis-à-vis the private sector. Similarly, the private sector doesn't want to be put at a competitive disadvantage vis-à-vis those countries that have chosen to use single-desk sellers as a means of marketing.

Clearly, Mr. Chairman, that is going to be one set of issues that are relatively new and certainly could stand some more thorough analysis and examination of exactly what are the real problems as opposed to what are the problems of doctrine and philosophy. Very briefly, Mr. Chairman, those are some of the issues we foresee being on the next negotiating agenda for the next round of agricultural negotiations.

My last comment would be that if you're an agricultural negotiator and you want a big result on agriculture, the last thing you want to do is to negotiate agriculture by itself. Basically, if you're the minister of agriculture in Japan or Korea and you have absolutely no export interests, why would you want to do anything in Geneva in terms of reducing barriers to trade?

If you have more than agriculture on the negotiating table, then clearly there are more issues. Those countries such as Korea and Japan, for example, have benefited enormously from the reduction of trade barriers on industrial products. Basically, when there are industrial tariff reductions or negotiations going on or negotiations on services, then clearly when there are discussions in the Japanese cabinet or the Korean cabinet, they have to take into account the broader national economic interest and not simply the desire to protect agriculture.

I realize, Mr. Chairman, I've probably gone on far too long, but I thought I could at least provide you with some kind of environment in which to pose any questions you may wish to put. Thank you.

The Chairman: Thank you very much, Mike.

On the sanitary and phytosanitary side, the countries use that as a trade barrier also or a trade delay. Is there anything being done in that regard?

Mr. Mike Gifford: Yes. On the sanitary and phytosanitary barriers, that's a separate agreement. There was an agreement on agriculture in the Uruguay Round and there's a separate agreement on sanitary and phytosanitary. That agreement is subject to review in 1998. Some people are speculating that it's going to prove impossible to make any substantive changes to that agreement in the context of the 1998 review. I think most people are expecting that the sanitary and phytosanitary issues in effect will start to be negotiated again in parallel with the main agriculture negotiations.

There's one very important panel that's currently before the appellate body, and that is the Canadian and U.S. panel against the European Community on the use of growth promoters in beef. Basically, the panel confirmed the Canadian and U.S. contention that this was a misuse of a technical barrier and ruled in favour of the Canadian and U.S. position. The European Community has appealed to the appellate body and that appellate body is expected to rule before Christmas. It would be very interesting to see that final decision because in many people's view, the European ban on beef from countries using growth promoters in fact is going to be a test case as to how good the sanitary and phytosanitary agreement is.

The Chairman: So that accord is different from the—

Mr. Mike Gifford: It's a separate agreement.

The Chairman: Colleagues, I think for the next hour we'll open the floor to questions and then we'll have a half hour for ourselves and where we will be taking this.

Mr. Hill.

Mr. Jay Hill (Prince George—Peace River, Ref.): Welcome to the committee again. As you suggested, or as the chairman suggested, we'll probably be seeing a lot of each other over the months and probably years ahead.

I just want to go back to the issue that you kind of highlighted. I found it interesting that you highlighted during your presentation the issue of single-desk selling. I'm sure you're well aware that Bill C-4 is presently before the House.

• 0935

Can you summarize how much pressure you expect in future negotiations, what we as a nation will be experiencing on that front? What are the primary contentions? You touched very briefly on them.

Perhaps to guide a bit of your discussions, I would just throw out that I heard you say the argument there is that Cargill and other multinationals don't release, on a transaction-by-transaction basis, what price they achieved, what they sold it for. I would suggest there's substantially more concern, especially among producers, about the potential—at least, I'll say the potential—for the Canadian Wheat Board and our competitors to be dumping on the international market than there is about the private sector doing so. From a producer point of view, anything like that occurring would come right off their final payment. That, of course, isn't the case with the private sector, where you get the full payment upfront.

Mr. Mike Gifford: Mr. Chairman, the mandate of the Canadian Wheat Board is to maximize revenue in terms of its sales. Under the existing WTO rules—

Mr. Jay Hill: If I could interject there, Mike, that's not the mandate. As clearly defined by the courts, the mandate is the orderly marketing of designated grains. Anyway, carry on.

Mr. Mike Gifford: I guess the point I'm trying to make here is that under the existing WTO rules, it's explicitly acknowledged that marketing boards may price discriminate. Price discriminating basically is the capacity to sell into different markets at different prices. This is, of course, a recognition that even in the industrial sector, many large industrial firms will price discriminate by market. If you have have a case of a 100-horsepower tractor that's manufactured in the United States, it's sold in North America at one price, it's sold into Europe at another, and it's sold into Iran at yet another.

Companies can and do price discriminate, whether they're in agricultural or non-agricultural pursuits, so the board is not doing anything that's inconsistent with the existing GATT rules. The capacity to price discriminate on a commercial basis in recognition that the price in different markets—the domestic price, the price you have to compete against—differs. Because of trade barriers between various markets, you're committed to price discriminating, whether or not you're a large transnational, or whether or not you're a single-desk seller like the Canadian or Australian wheat boards.

It's certainly our view that no country, including the United States, is saying that single-desk sellers should be eliminated. What they've been saying so far to the international community is that they think there should somehow be some new international disciplines placed on single-desk sellers because of “the potential” for distortions. In response, we would simply say that if they're talking about potential, it's up to those people who think they have a problem to document exactly what it is that they think the problems are, and we're quite prepared to discuss them. But don't come at us with doctrinal views or positions of philosophy that basically say somehow that their things are good and our things are bad.

When it comes to decisions simply about marketing, that is a domestic decision. If Canadian grain producers choose to have a single-desk seller, that's their decision. It has nothing to do with the international community. If a New Zealand dairy producer wants to have a single-desk seller for New Zealand dairy products, that's the New Zealand producer's decision, and not the international community's. The international community obviously can have a role if there's a consensus that the actions of these sellers are in fact being injurious, but so far there's certainly been no consensus in that regard.

So to put it briefly, Mr. Chairman, the Canadian position on single-desk sellers and the accusations that the United States has been making from time to time is that they should basically put up or shut up.

Mr. Jay Hill: How much time do I have left?

The Chairman: Two minutes.

Mr. Jay Hill: Two minutes? Okay.

On the other side of the equation, Mike, you say there's some pressure, or you felt there has been some pressure. As we move towards 1999, I just wonder how much additional pressure you expect on the accessibility for our international partners to be able to buy in Canada. In other words, you would kind of address the single-desk seller part of it, at least what they class as having the potential for dumping on the open market or world market.

• 0940

What about on the other side? How are we going to be able to defend the fact that, for example, these other international companies are not allowed to buy other than from the Canada Wheat Board?

Mr. Mike Gifford: I think the concern about the security of supply is another issue, and I'll touch on it briefly. It's certainly the view of the Canadian government that, in the next round, if exporters want the net-importing countries to have greater confidence in the international market, there should be increased disciplines on the use of export taxes and export restrictions. Right now, there's hardly any discipline on the use of export taxes and export restrictions.

For example, the Japanese clearly remember what happened back in 1973, when the United States put an embargo on soybeans. That precipitated everybody else putting embargoes on protein supplements.

Clearly today, in the last couple of years, you've seen the European Community slap export taxes on its wheat exports. It's in order to protect their livestock producers they say. But the bottom line is that you're sending a signal to the importing countries that they can't rely on the international market.

Certainly Canada and other members of the Cairns Group heard the view that it's legitimate in the next round for net-importing countries to seek some greater international assurances about the security of supply. It's not so much the capacity of single-desk sellers to choose who to sell to, it's basically the capacity of governments to slap on export restrictions or export taxes.

The Chairman: Mr. Chrétien.

[Translation]

Mr. Jean-Guy Chrétien: Mr. Chairman, I was just told that there will be an unannounced vote at 10 and that the bell will ring for a maximum of 30 minutes. We might well be caught as we were two weeks ago when the Reform Party shortened the bell time. I really would like to participate in this morning's vote. It is on the environment.

Mr. Gifford, very quickly, for my benefit and that of other members who are new on Hill, could you remind us what role you played in the 1993 negotiations? Then I will have three questions.

[English]

Mr. Mike Gifford: Yes, I was the lead Canadian negotiator on agriculture for the GATT negotiations that ended in December 1993.

[Translation]

Mr. Jean-Guy Chrétien: Mr. Chairman, the witness, Mr. Gifford, certainly remembers that within that agreement that became the WTO it was agreed that all signatory countries would reduce their agricultural subsidies by 15% at least and by 30% on average. Right now I think that Canada has greatly surpassed the minimum. Could you tell us exactly where we're at?

[English]

Mr. Mike Gifford: I'm afraid I can't give the committee the actual numbers today, Mr. Chairman, but I'll make sure we provide it to you.

But in rough terms, if memory serves me right, back in the mid-1980s—this was used as the base period for these reduction commitments on internal support—the Canadian level of support on domestic subsidies was something in the order of $5 billion. Our obligation was to reduce that by 20%, say roughly down to $4 billion.

Now that clearly represents a ceiling, because today the level of support to Canadian agriculture, at both the federal and provincial levels, is certainly well less than $2 billion.

[Translation]

Mr. Jean-Guy Chrétien: So we have more than met our targets in that area.

Mr. Gifford, I presume that you will play a major role in the next negotiations that should start officially at the end of 1999. Can you give us assurances right now that you will defend the supply management system for eggs, poultry and milk with the same vigour and determination that you have always shown?

• 0945

[English]

Mr. Mike Gifford: Supply management is not on the negotiating table in Geneva. It never was in the past, and it never will be in the future. What's on the negotiating table in Geneva is what kinds of trade barriers you may have at the frontier, not what internal marketing system you may have.

Clearly, the issue that will face the supply management sector for the next round of negotiations will be the pressure basically to have tariff reductions and increases in the tariff rate quotas.

As a negotiator, I will take my instructions from cabinet, and the cabinet discussion about what should be the appropriate Canadian mandate will reflect the discussions with the industry and the sectors and the provinces over the next two years.

[Translation]

Mr. Jean-Guy Chrétien: Mr. Gifford, we have had a trick played on us by Unilever Canada, a powerful multinational whose shareholders are mainly in New Zealand. They have found a way to import butter oil into Canada by introducing the authorized maximum into the mix.

Will you admit here this morning that it was not a mistake but rather a lack of foresight on the part of negotiators in 1993 who didn't anticipate the gimmick Unilever Canada used?

[English]

Mr. Mike Gifford: Half of the difficulty with these blends is that there were some blends that were identified prior to the end of 1993. In some cases, even though we did not have these products under import permit control before, we nevertheless tariffied them, and we were subject to challenge. We would have lost if somebody had challenged us, but we didn't get challenged.

We did sit down with the dairy farmers to figure out how to draw the circle. Basically, this product was not identified as a problem at that time. I think it's fair to say that when we did draw the circle, it was drawn in a way that was most favourable to the dairy farmers at that point in time.

However, you cannot predict the future with certainty, and there are all kinds of various other combinations that could be potentially huge. You simply cannot tariffy out of thin air things that weren't previously subject to import permit control.

I guess at some point a judgment had to be made as to where to draw that line. Where there was any doubt, we drew the line most favourably to the dairy farmers. But obviously, in this particular case, this was identified as a product that could enter under a lower tariff item and the industry basically started to use that opportunity.

[Translation]

Mr. Jean-Guy Chrétien: Mr. Chairman, I think I still have a few minutes. I will give the rest of my time to my colleague.

[English]

The Chairman: I don't think so.

Mr. Jean-Guy Chrétien: I think.

The Chairman: I think your time is up.

Go ahead, Murray.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Mike, I'm going to follow along similar to what Mr. Chrétien has been talking about on the subsidies.

I would like you to compare us to Europe. The farming structure in Europe is very different from our situation here. In fact, they still are working from the motto that was spawned from the Second World War that “We will never starve in the dark again”. Therefore their subsidy system is much higher than ours is here. I would like a comparison, because obviously that's going to be a negotiating point when we go to WTO in 1999: as our subsidy system is already a lot lower than theirs, how much are they willing to come down?

• 0950

Some of Mr. Chrétien's ancestors who are still living over in France can be very nasty people around their politicians over there. They drag dead animals up on their parliament buildings and that sort of thing. So it's going to be an interesting negotiation factor over in France.

I'd like your comment on that first and then I have another question.

Mr. Mike Gifford: Traditionally the European Community has been one of the laggards on trade liberalization in agriculture. It's basically fought a rearguard action. Even though it's the world's second-largest exporter and the world's largest importer, its trade policy in agriculture has been defensive, not offensive. This is reflected as a function of the common agricultural policy they've developed.

But one of the most significant developments over the years is that the common agricultural policy is changing and is proposed to change even further. Probably the key thing that helped to bring the Uruguay Round of agricultural negotiations to a close was the decision by the European Union to change their support policy for cereals. By reducing their support prices and allowing market prices to fall, they were able to buy into an export subsidy reduction commitment and take on some access commitments. And Mr. Fischler, the European commissioner responsible for agriculture, has announced recently his intention to further reduce the support prices for cereals in Europe.

That's on the cereals side. Clearly the Europeans feel that in the next round, they're going to have their support prices down to a level where they're not going to have to rely on export subsidies any more. This is probably one of the most positive developments if you're a Canadian grain farmer. At long last the Europeans are changing their policy so they don't have to rely on export subsidies in order to compete on world markets.

But they're not proposing to make dramatic shifts to their other policies, for example on dairy, where at least some member states have a supply management system of individual production quotas, very similar to the Canadian system, and in other member states the production quotas are based on the dairy as opposed to the individual farmer. Mr. Fischler, as part of his most recent proposals, is saying he doesn't plan to really change that supply management system for dairy. He's going to keep it until 2006.

So there's simply no indication from the European side that they're going to radically change their dairy support policies in the near future, but there is a very solid indication that they are going to continue to radically change their support prices for cereals.

As I say, if you are an optimist—and you have to be an optimist if you stay in agriculture—you can say this augers well for the prospect of finally, albeit with some kind of transition period, getting the international community to phase out export subsidies.

Mr. Murray Calder: Mike, I hear a lot of “could”, “might”, “maybe” when you're talking about this. Obviously the subsidy level in Europe is a lot higher than what it is here. Without giving away our negotiating position, it would seem to me more logical that when we go into this round, we not lead the pack in what we're going to give away, but see what the rest of the pack is going to give away before we start showing our options.

Mr. Mike Gifford: To give the committee some idea of the relative degree of support that Europeans receive in agriculture, off the top of my head—and I'll supply the committee with the actual figures—using the so-called producer subsidy equivalent measure, which is a fancy name for the sum total of government support, both direct and indirect, to agriculture as a percentage of foreign revenue, the support level to European agriculture is in the 40% to 50% range. In other words, 40% to 50% of their revenue comes from either direct financial support or indirect support provided by border protection.

• 0955

In Canada that figure in 1996 was about 20%, and since 1996 it has included one-for-all compensation payments for eliminating the WGTA. That number is going to fall even more in 1997. The Americans are somewhat below us, but I would suggest that probably in this calendar year, 1997, we'll see basically Canadian and U.S. support levels in the order of 15% to 16%, as compared to support levels in Europe of well over 40%.

Mr. Murray Calder: Okay, I'd like to switch to supply management now. We know there's not going to be very much of a challenge, if any, from Europe on supply management, because they have supply management. Obviously, then, we're going to have to turn around and take a look at our friend south of the border, the United States.

I had the privilege last year of debating Pat Roberts on this issue, and he told me point blank that they have no supply management in the United States. I questioned them about the eastern dairy compact of Wisconsin, the quota system they have set together for sugar beets, the quota system they have set for peanuts, of which each one of those have been actually increased since the signing of NAFTA.

Our position as we go into this is whether we are going to challenge the United States on that. Obviously, because they're starting to adopt a supply-managed system in there, do you think that's going to be much of a problem from them this time around?

Mr. Mike Gifford: Mr. Chairman, the American position on dairy has shifted dramatically.

When we were negotiating the free trade agreement with the United States back in the late 1980s, the Americans were paranoid about not freeing up dairy. The U.S. dairy interests were certainly more concerned about imports than they were about exports. But by the time the NAFTA negotiations concluded with Mexico, the American position had shifted radically. Basically, the cohesion of the U.S. dairy lobby was fragmented. There was a lot of expanded production in California and in the southwest.

Basically, the industry has now adopted a position that it can compete internationally and it's taking a rather aggressive export position, and that has led in part to the U.S. dairy industry taking the position of challenging Canada's export pricing practices on dairy products.

Like I say, the issue isn't so much supply control. Each country can choose to use the marketing system it prefers. Where you're subject to international pressure is basically on the type of border regime that goes along with that kind of a system, and basically we can expect the United States and other exporters of dairy products will want to increase around the world the level of access in terms of the tariff rate quota and to reduce the level of tariffs.

But I might make the point that in terms of equivalence, a level playing field, when Canada made its initial dairy offer in the Uruguay Round, it made an offer that was exactly what Arthur Dunkel had proposed; that is, a minimum access commitment of 3% of consumption, going up to 5%. The only reason we ended up giving less than that was that the United States basically did not do what Dunkel proposed, and therefore we scaled back our offer to match that of the Americans.

I think one of the big issues in the next round on dairy and sugar, which are the two most distorted agricultural sectors in world agricultural trade, is basically all the major importing countries are going to be paranoid about getting equivalence of access commitments. In other words, there shouldn't be a gross disparity in the access that Europe provides dairy products, as opposed to North America or Europe. Right now there are major differences.

The Chairman: Mr. Proctor.

Mr. Dick Proctor (Palliser, NDP): Mr. Gifford, you indicated to Mr. Chrétien you were the lead negotiator on agriculture in the Uruguay Round. My question initially is, did you feel that Canada was well prepared for that Uruguay Round? Did we have our ducks lined up? How does it compare with where you think we are going into this next one?

Mr. Mike Gifford: With the benefit of hindsight, in the last round I think the one sector that was prepared was the supply management sector. But that being said, there was a lot of cynicism. The GATT had had eight successive negotiations on agriculture since 1947, and before the Uruguay Round progress was hard to measure. Therefore there was an awful lot of cynicism in the industry that much could be accomplished. Why should this negotiation be any different from past negotiations?

• 1000

When we prepared for it, we did develop a negotiating position, which I still believe was a credible position. The fact that it lasted so long suggests that in fact it was credible.

On the supply management side we said all right, under article IX the GATT says you can have import quotas if you have effective supply controls. So we put forward a position, developed with the industry, that we were prepared to increase access to the Canadian market, we were prepared to accept export limits on how much we could export, but in exchange we wanted to maintain import quotas in support of supply management. We held that position until literally the last couple of weeks in the negotiation. When the European Union agreed with the Americans that the name of the game was going to be tariffication and that all these import quotas, irrespective of whether they were legal or illegal, were going to be converted into tariffs, that position no longer became sustainable.

To answer the obvious question, were our export interests prejudiced by our position of supply management, my answer is no, because we did have a credible negotiating position in article XI. I can honestly say that in my professional opinion, for what that is worth, our export interests did not suffer as a result of our position on supply management. But I would suggest that in the next round we are not going to be able to have the luxury of having in effect a two-pronged negotiating position, because we no longer have article XI. The issue of market access is very narrowly defined as what is going to be the depth of cut in the tariffs and how much is going to be the increase in the minimum-access commitment.

This is why we're encouraging all stakeholders in the Canadian agrifood system to start to think now about these implications. What we could do in the way of a credible position back in the mid-1980s we can't do today. Therefore the export interests in Canada, whether they are blueberries in the east or greenhouse tomatoes in B.C., are going to have to try to reconcile the varying interests.

On the one hand the export interests are in getting maximum reductions in import barriers in foreign markets, and clearly the sensitivities on the supply management side are about maintaining as much tariff protection for as long as possible. That is not going to be an easy reconciliation. That's why we're suggesting the industry needs to take the time and make the effort to come to grips with this issue.

I would suggest, Mr. Chairman, that the answer to the last question is yes, the industry this time around, all segments of the industry, are very much aware of this. They don't have to be persuaded too much that it's in their own interest to start to debate these issues today rather than to wait until the negotiations have started.

Mr. Dick Proctor: The reason I asked that, Mr. Gifford, is I was at that conference in Saskatoon a few weeks ago, the one you mentioned, and I felt the corridor chatter there was that we were perhaps going to be spending too much time, or that we should be taking some positions. The folks I was listening to at that conference would not have been encouraged by your comments this morning that it's far too premature to take a position and that we're going to wait until the late summer or early fall of 1999. The reference I think about is Kyoto this week, and the delays; we had four years there.

I'm asking your response to that. And do you think our competitors are taking a similar position?

Mr. Mike Gifford: The bottom line is that these negotiations won't start until late 1999, and for sure the Europeans, the Japanese, and the Koreans are not going to engage in negotiations before that time. So the question is, what utility is there of trying to establish a negotiating position today, particularly when we know there are various bits and pieces that are going to fall into place over the next couple of years, for example, the outcome of the panel discussion on two-ply systems?

• 1005

I do not believe that the Canadian agricultural interests are going to be prejudiced if we do not define a detailed negotiating position until the fall of 1999. I would suggest that if we can't get our act together by that time, though, we will be prejudicing our position. So for sure we need a negotiating position by the fall of 1999.

The Chairman: Mr. Borotsik.

Mr. Rick Borotsik (Brandon—Souris, PC): Thank you, Mr. Chairman.

First of all, I would like to apologize profusely for not being here to listen to your presentation. I'm making that apology to Mr. Gifford.

I have a couple of things, and if you've touched on them, I apologize. But first I'd like to touch on a comment Jean-Guy made with respect to the butter oil. You had indicated that at the time your department had sat down with the dairy producers and had identified this issue as not a very important issue. You didn't see it as having a major effect on the production of dairy products in Canada. Whose decision was it that it wasn't going to be a major impact? Was it in fact the producers who came forward and said this really isn't that important, or was it your department and the government that identified this as not a very major issue?

Mr. Mike Gifford: Mr. Chairman, this is an in camera meeting, is it?

Mr. Rick Borotsik: Yes, it is.

The Chairman: No, it's not, not yet. After Mr. Gifford leaves it's in camera.

Mr. Rick Borotsik: Then maybe we should have this conversation over a telephone. But perhaps you can be somewhat generic.

Mr. Mike Gifford: In response to that question, blends were identified as an issue by the dairy farmers, and when the circle was drawn around the definition of blends what was included was everything that was identifiable at that particular point of time, but the particular blend of sugar and butter oil was not identified by either the dairy farmers or the government as a problem at that point in time.

Mr. Rick Borotsik: Because they didn't realize that it was a potential problem and it wasn't on the table at the time?

Mr. Mike Gifford: That's right.

Mr. Rick Borotsik: Nobody even had enough foresight to look forward and say if we make these necessary changes this could be a problem.

Mr. Mike Gifford: The problem is that there are so many combinations of products where you can basically mix dairy products and something else that it's impossible, in effect, to identify all the possible combinations. And where do you draw the line, for example, in the case of frozen pizza? A lot of the value of the frozen pizza is the mozzarella topping. So do you say that because it has cheese you put a tariff rate quota on frozen pizzas? This is the problem. Where do you draw the line? The government drew a line, and it drew a line, as I said, at a point in time most favourable to dairy farmers, but then we're having to live with the line as it exists today.

Mr. Rick Borotsik: I won't go there. I appreciate that.

My next question is with respect to the multilateral agreement on investment. Did you touch on that by any chance in your dissertation?

Mr. Mike Gifford: No.

Mr. Rick Borotsik: The MAI is designed obviously to foster a climate of international investment. It's my understanding that in fact to foster that climate of investment everything's on the table, including the marketing boards, the supply-side management. Is that in fact the case, and are you involved in the initial...? And I guess it ties in with the butter oil thing here, because if we don't have the foresight to look at what the potential is down the line on the MAI, we could be sitting here three years or four years from now saying why didn't we think of this, because it's impacted us substantially in this area. Are you involved in the MAI at this point in time? And where's it heading and where do you see the effects on the agricultural industry?

The Chairman: You can answer and then we'll go to Mr. Bonwick.

Mr. Mike Gifford: Yes indeed, the Department of Agriculture and Agri-Food is involved in the negotiations on investment that are taking place in Paris under OECD auspices, and certainly we've been consulting very closely with the industry on the elements that could potentially impact on agriculture.

• 1010

Basically the Canadian negotiating position is simply that we want to replicate in the OECD negotiations what is already in the NAFTA—nothing more, nothing less.

It's certainly our view that there's nothing in the NAFTA that prevents us from establishing monopolies, maintaining monopolies, creating new monopolies, and doing whatever we want to do in terms of domestic marketing systems. Certainly, to use a hypothetical example, if the wheat board's mandate were expanded to include another product, clearly under both Canadian law and under NAFTA the government would be obligated to pay appropriate compensation if the extension of that mandate involved the economic loss for certain participants in the industry.

What we're saying is that the mandate Canadian negotiators have from cabinet is to seek an agreement that in effect replicates what we already have in NAFTA. If the negotiations are going to go somewhere different, then the Canadian negotiators are going to have to go back to ministers and get a new mandate or a reaffirmation of the existing mandate.

The bottom line, Mr. Chairman, is that negotiators never should go into negotiation with the idea that they're prepared to sign no matter what. We have in the past turned our backs on the outcome of certain negotiations if it was not in the Canadian national interest.

Mr. Rick Borotsik: I'm just wondering if you could expand on that a little bit. The way I understand it now, you are saying that you're going to try to stick to the premise of NAFTA. I don't believe that's going to be the initial opening gambit of the people you are negotiating across the table from, and if that's the case, are you prepared to go in another direction at that point in time? Because I don't think you're going to be able to stay within the tenets of NAFTA in the MAI.

Mr. Mike Gifford: Mr. Chairman, I'm not a negotiator on the investment agreement. My staff certainly participates on the Canadian team.

My understanding is that it's still problematic as to whether these negotiations will be concluded under the auspices of the OECD. There is a distinct possibility that in fact these negotiations, if they're going to conclude, will probably conclude in Geneva under the auspices of the WTO, because the OECD only covers developed countries.

But this is very early days in the negotiation. It's still far from clear as to where they're going to end up. There are all kinds of proposals on the table, but as yet there is no emerging consensus as to where the negotiations are going to go. That's about as much as I can say, Mr. Chairman.

The Chairman: Mr. Bonwick.

Mr. Paul Bonwick (Simcoe—Grey, Lib.): Mr. Chairman, my comments or my questions fall in line with Mr. Borotsik's, actually, and regard circumvention.

Any type of control or circumvention clause has to be as strong as any agreement, because the agreement is only as strong as the circumvention itself. I would certainly encourage you and perhaps ask you to outline what your strategy is, to ensure us that the wording is such that circumvention is not allowed to take place, and to try to be a visionary and suggest this may take place or that may take place. I mean, the possibilities are virtually endless because we can't forecast what technology may allow various countries to circumvent.

I think you have to be extremely strong on the wording of circumvention in order to maintain the integrity of the entire agreement so that we don't face situations like the Dairy Farmers of Canada and the butter oil situation. I certainly haven't received any information at this point from DFC that this is a minor or a mute point. I question whether in fact that is their position, because I met with them as late as Saturday of this past week, and that was not their position then, so unless they changed their mind on Sunday....

Mr. Mike Gifford: Mr. Chairman, the problem facing customs officials around the world is always where is the most appropriate place to pacify, and what constitutes circumvention of a tariff line?

You're perfectly entitled as an exporter to basically seek to enter the most favourable tariff rate. The question is, are you creating an artificial product in order to do that?

• 1015

As I think I suggested to the committee last time around, a product—for example, this famous mixture of skim milk powder and salt, where basically the salt and powder mixture was being imported to Canada, the salt was being separated and sent back for more powder, and it was going back and forth across the border.... It was a clear case of circumvention, and because it was an artificial product, there was no inherent use for that product. National Revenue refused to classify for the item that the importer wanted and the importer appealed and lost. So there's an example where you can basically come to grips with the problem of circumvention.

The problem with the butter oil and sugar mixture is that it is a legitimate product in trade. It is not physically separated out once it's imported. It is used by an ice cream manufacturer or it can be used by a cookie manufacturer to make a product. Therefore, from the customs point of view, they're saying this is not an artificial product, that it's a legitimate product in trade.

This is the conundrum that any government is faced with. Where do you draw the line? To help them draw the line, they've all basically agreed to operate their customs administrations in a very similar manner under this World Customs Organization located in Brussels. From time to time, there will be appeals made to that customs body to determine where certain products should be put, and it's based on that practice. So the standardized system of how you go from a chapter heading, from four digit to six digit to eight digit, is basically the way a national revenue tariff classification officer would proceed. There's no easy answer to this question of classification.

Mr. Paul Bonwick: What I was saying in the supplementary, and really it's not supplementary so much as it is asking the question over again or making the statement over again, is that there must be wording. We must have legal people who can devise a clause whereby circumvention is not permitted.

With regard to butter oil, that's just one specific. Again, Mr. Borotsik touched on what other opportunities there are down the road. I would suggest to you, sir, that there is an opportunity for very broad but strict wording to impede any future circumvention. To suggest that because it is an end product it is not circumvention.... I would suggest that we don't know what the needs are going to be in five years. There may be a tariff on X and a tariff on Y and at this point in time no need for an X-Y mix in Canada, but four years from now there very well may be a need for an X-Y mix in Canada, in which case, if you do not have a very strict language in there preventing that and avoiding that “if it's a product, then it's not really circumvention”.... That certainly doesn't wash with me. And I don't think we would be in this situation today with butter oil and sugar if in fact the wording had been there then.

The Chairman: Before we go to the second round, let me tell you that apparently there's no vote. The vote that was scheduled for around 10 o'clock has been cancelled, according to Mr. Chrétien, who is the one with the information.

The other thing, Mr. Gifford, is the whole question of timing. The committee's going to have to decide whether this is the right time to be involved in having hearings or getting information on the next round. Seeing that it is not until 1998, and you've gone through this whole process before, when three-year or four-year negotiations went on for six or seven years, can you maybe give some advice to the committee on what we can do leading up to the actual negotiations?

Mr. Mike Gifford: Mr. Chairman, for what it's worth, I think I've tried to indicate that there are a number of issues that have only just been touched on or are in the process of being elaborated. For example, there is this panel report on Canada's export prices on dairy products. And the whole question of how we deal with biotechnology is in its early days.

It seems to me that a number of important issues are going to evolve over the next couple of years, and it would seem to me to be entirely appropriate for the committee to pay very close attention to how the preparations are evolving and, more importantly, to how various countries' positions are seeming to evolve. For example, as I mentioned to Mr. Calder, where the Europeans come out on the form of the common agricultural policy will in effect give you a good idea of how far we might be able to go, because obviously the European Union is one of the major players.

• 1020

It's the politics of agriculture always, and we expect that the European Union would make its decision on reforming the common agricultural policy after the German presidential elections in September of 1998. Basically you'll find out in early 1999 where Europe's coming from or is likely to come from.

Just like the House agricultural committee in the United States, Mr. Chairman, they've already had a series of hearings on the next round. I would envisage that they are going to have continuing hearings over the course of the next couple of years and through the negotiations to make sure they're informed as to what the emerging issues are and what the U.S. negotiating position is likely to be.

I think it's entirely appropriate that this committee do something similar. Just keep everything under review. At some point you might wish to make your views known to the government. What I would suggest, again for what it's worth, is that you'll probably have a much better view of all the various interests at stake and at play in the negotiations by the fall of 1999 as opposed to just before Christmas of 1997. It's just very complex negotiations; it's going to become even more complex as time unfolds.

The Chairman: Thank you.

We'll go Mr. Benoit and then Mrs. Alairie.

Mr. Leon E. Benoit (Lakeland, Ref.): Thank you, Mr. Chairman.

Welcome, Mr. Gifford. I only have five minutes, so if I could I'd like to get you to keep your answers as concise and as direct as possible. I just want to follow up on issues that have been brought up by some others here.

First, you made a comment somewhere along the line that if a new product were to be put under the wheat board jurisdiction, government could be forced to pay compensation. Could you explain that?

Mr. Mike Gifford: Yes. I'm not a lawyer, but my understanding of Canadian law is that it's just natural justice. Basically if a government decides to create a monopoly on a particular product, that has the effect of adversely affecting the financial affairs of the company already involved in that product. Then the company that's adversely affected could basically demand compensation for damages incurred. That's under Canadian law.

Under NAFTA basically you have that protection. If you're a company that's involved in marketing a product that's going to be in effect overtaken by a single-desk seller, then you have the right to compensation. That doesn't in any way prevent the country from deciding to create a monopoly. All I'm saying is that under both Canadian law and the NAFTA provisions, if somebody's adversely affected by that, they would be entitled to appropriate compensation.

Mr. Leon Benoit: Yes. For example, let's just say that canola was put under wheat board jurisdiction and the processors felt that by doing that it would damage their ability to gain supply or something and it damaged them in some other way. They could sue government for compensation. What would the process be?

Mr. Mike Gifford: To use the example of canola, more likely it's the exporter of the canola who could no longer export direct. Basically the only way they could export would be as an accredited agent. It would be the exporter who would basically have the right to go to the courts.

Mr. Leon Benoit: So it's more than likely for companies that have lost a part of their business due to the monopoly being developed, not for processors, you think. It's not very likely that there would be any claim there.

My second question is again as the result of an answer you gave to another question. You've said a couple of times now that there's nothing to stop Canada from establishing or maintaining monopolies. But changes made can certainly reduce or eliminate the benefit to farmers, such as supply and management, for example. Is that not the case? So the government can establish or maintain supply and management, but the benefit that farmers gain from being a part of a supply and management system could be completely lost very easily as a result of negotiations.

• 1025

Mr. Mike Gifford: As I said, it's entirely up to the country to decide internally what kind of marketing system it wants for a particular product. The question is, what will the tariff protection be at the border? In the Canadian case you have tariffs ranging from 350% to 200% down to zero and everything in between.

To keep it very simple, any single-desk seller has the capacity to price his product at a duty-paid delivered price. Even in an industrial sector, for example, if you have any kind of market power at all, you will price your product for domestic sale at whatever the duty-paid landed price of the imported product is. As long as you have a 10%, 20%, 30%, 50%, or 250% tariff, you will always have the capacity to maintain your single-desk seller role and extract the most you can get from the domestic market.

It becomes a fine point to ask when it doesn't pay Canadian producers to band together and sell through a single-desk seller. You could make the point that as long as there's any kind of tariff protection it still makes sense to extract the most you can from the domestic market.

The Chairman: Madam Alarie.

[Translation]

Mrs. Hélène Alarie (Louis-Hébert, BQ): Here is my question, Mr. Gifford. You said that there was a consensus to ban export subsidies for agricultural products. But you also said that domestic subsidies are just as trade-distorting. I agree with you.

My question is this: are we reassessing our support to Canadian farmers? I'm thinking, for example, of stabilization programs, support programs, farm credit and so on. Can these measures still be considered as green or are they subjects to challenges? Do they also hide... There are also hidden or indirect subsidies that can impact on production costs. Are we reassessing all this in preparation for the next round of negotiations?

[English]

The Chairman: Before you answer, I just want to tell everybody I have a note here saying you have to leave at 10.45.

Mr. Mike Gifford: I can stay perhaps a few minutes later than that, Mr. Chairman, but I do have a previous engagement. I didn't realize we would go for two hours, but I'm certainly at the committee's disposal.

Mr. Jay Hill: I have a point of order, Mr. Chairman. It is my understanding that the primary function of the meeting is to discuss where the committee's going from now. How much time were you considering allotting for that discussion?

The Chairman: I thought we'd be done now at 10.30, so we'd have half an hour. We have to be out of here at 11 o'clock. When we opened the meeting I said we'd go to 10.30 and then go into an in camera session.

Mr. Murray Calder: We'll just have to get Mr. Gifford back again.

The Chairman: Absolutely.

Maybe you could answer Ms. Alarie's question and then we'll go in camera.

Mr. Mike Gifford: Certainly, Mr. Chairman.

I think Canada is not unique in shifting its support away from traditional support programs like the old stabilization act programs to the direction of whole farm income and the NISA program.

The NISA program doesn't quite fit the very narrow technical definition of green, but as far as we're concerned this is about as trade-neutral as you can get. Certainly when the Americans looked at it in the recent hog countervail they acknowledged it is basically a trade-neutral program. When the Americans shifted away from their old commodity support programs for grains, they moved to a system that is perceived to be green.

The conundrum governments will have is that they will continue to have the right to provide support to the rural sectors, but internationally more and more of that support will be channelled into green and less and less into the so-called amber. It's really up to the political system in each of the countries to decide how much support will be provided to the rural sector. If you have a relatively large treasury, you're better able to provide that support than if you don't have anything.

• 1030

To pick up on Mr. Calder's point, in Europe they have very large treasuries. Even when they've moved away from the traditional programs to new programs the support they've provided to, for example, the syrup producers has been still very significant.

If you were an Australian or an Argentinian farmer, you'd say, well, my government would never have the capacity to support Argentinian or Australian agriculture to the extent the Europeans have; aren't I at a disadvantage?

You'll hear Argentinians and Australians arguing, then, that even green support should be reduced. I've heard that comment made in Canada, even, that surely the name of the game should be to equalize more the level of support between countries, and isn't it unfair that certain countries can basically receive tremendous direct income payments?

As you say, there is no international solution to this question. This is a domestic political decision. How much is the government of the day in any particular country willing to spend on the rural sector, and in what way?

So this is really more of a domestic policy issue than international trade. All I'm saying is that from an international trade perspective the pressure is on all governments around the world to provide whatever support they choose to provide in a less trade-distorted way than they used to. That's clear. But the decision on how much to spend and what kind of programs to have is basically left up to the domestic political process.

The Chairman: We can finish the round with you, Mr. Steckle, if you want.

Mr. Paul Steckle (Huron—Bruce, Lib.): Yes, thanks.

Very briefly, Mr. Gifford, one of the concerns I have.... I don't know how we can address this. My reaction to the agreement we had in 1993-94 was that we were going to get rid of various countries' treasuries subsidizing for export, to which you alluded this morning.

I think I'd take us back to the example...and the western producers of durum wheat will know all about this. We sell to the American people 20,000 tonnes of durum wheat. They in turn subsidize that, very heavily, into one of our given markets.

I suppose there was contravention, obviously, I would believe, but how do we prevent that from happening? I mean, the American treasury is still our biggest enemy when it comes down to these kind of agreements. We thought we were getting rid of that issue, and it's still an irritant. How do we get rid of it in the next round?

Mr. Mike Gifford: It's true that western Canadian agriculture was most adversely affected when the Americans and Europeans went toe to toe in the export subsidy wars of the late 1980s and early 1990s. Basically any producer of wheat was taking it in the ear because of those wars.

I think it's fair to say that since the end of the round the Europeans have been much more careful in setting their export subsidy levels and the United States has basically not used export subsidies on wheat since, I think, mid-1995. They're under a lot of pressure to do so, but so far the administration has resisted that pressure. One of the reasons they resisted the pressure is for the very reason you've alluded to.

If the United States reintroduces its export subsidies on grains it's going to suck Canadian wheat into the United States, because the U.S. market will then be a lot higher than the world market in terms of returns you can get.

This is the conundrum the Americans have. They're under pressure from the North Dakota producers to reintroduce export subsidies on wheat and flour, but the administration has been told by us, in no uncertain terms, that, well, you know what's going to happen: as soon as you put on an export subsidy, this is going to make your market that much more attractive and we're going to export more wheat down there. It's not that we choose to export more wheat; it's that the American market would just draw it down.

Another point, Mr. Chairman, is that in the good old days governments could develop agricultural policies in a vacuum and basically ignore the consequences of their actions on the rest of the world. But as the barriers come down and the rules start to apply to all countries, and not just to a few, governments more and more, in developing their domestic agricultural policy generally, now have to take much more explicit recognition of the international consequences of the policy decision they've taken.

• 1035

The Americans are now being constrained about how they can use wheat. We're shipping about two million tonnes of wheat down to the States now in a year. They are high-priced markets, the same price as the Canadian market. Somebody in North Dakota can't figure out why two million tonnes of Canadian wheat are coming across the border. There are a number of reasons for it: we've got a better quality control system and we market wheat on a differentiated basis rather than just treating it as a bulk commodity.

The bottom line is that you've now got American buyers who like Canadian wheat. It's cleaned better. It's more consistent from load to load than American wheat. So we've got a nice market in the States.

If they think they have problems now with two million tonnes, if they introduce export subsidies they could suck in three million, four million, or five million tonnes.

The Chairman: Thank you, Mr. Gifford, for coming here this morning. It's been very informative. As was stated, we'll probably need to have you back again for another session, but we have to decide now what we want to do with this whole topic.

We'll now go in camera for the next twenty minutes.

[Proceedings continue in camera]