SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 1, 2000

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[English]

The Chair (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Ladies and gentlemen, I will now bring to order this meeting of the Subcommittee on International Trade, Trade Disputes and Investment in our continuing study of Canada's economic relations with Europe.

We'll start today with Mr. Gifford, from Agriculture and Agri-Food Canada, and Suzanne Vinet, acting director general.

Welcome. Please begin.

Mr. Mike Gifford (Special Trade Policy Adviser (Ret'd) to the Deputy Minister, Agriculture and Agri-Food Canada): Thank you very much, Madam Chair, and good afternoon, ladies and gentlemen.

Perhaps I can start by providing a bit of a historical perspective to Canada's trade in agricultural products with Europe, and the European Union in particular.

As many of you are aware, until the late 1960s, Europe in general, and the United Kingdom in particular, were the major markets for Canada's agricultural products. In fact, if you go back to the 1965-1967 period, you see that Europe was taking over 40% of Canada's total agricultural exports. Of course, this compares today to about 6%, and I'll explain the reasons for that very sharp decline in the importance of Europe to Canada as an export market.

Clearly, with the introduction of the common agricultural policy in the European Community of six that came into force in the early 1960s, what you had at the beginning of the early 1960s was a Europe that was basically a net importer of all agricultural products, and with the introduction of the common agricultural policy, with its very high price supports, that stimulated production right across the board in Europe to such an extent that by the late 1970s and early 1980s, Europe had become a net exporter of virtually everything it produced.

In the case of our exports to the United Kingdom, historically we'd had preferential access into the U.K. market. Historically, throughout the first half of the century and well into the 1960s, the United Kingdom was Canada's single largest market for agricultural products. By and large, we had duty-free entry, and where we didn't have duty-free entry, we had preferential access—in other words, preferential tariffs in favour of the Commonwealth countries.

Of course, when Britain joined the European Community in 1973, exactly the same thing started to happen in the U.K. as had happened on the continent a decade earlier. We saw our exports to the United Kingdom starting to decline. The situation now is that Europe has become not so much an export market for Canada's agricultural products, but a competitor in third-country markets.

The situation has basically deteriorated to the extent that I think, nine out of the last ten years, Canada has in fact been a net importer of agricultural products from Europe. This is a reverse from what you'd expect. Historically a long-term supplier of food and fibre to Europe, we've now turned into a net agricultural importer.

The reason is very simple. The Europeans have very good access to the Canadian agricultural and agrifood market, and we have lousy access to the European market. For much of the post-war period, we were engaged in a series of bilateral negotiations in the old GATT with the United States where we reduced tariffs, and of course when you reduced tariffs in a multilateral organization like the old GATT, the benefits to those tariff reductions were available to the Europeans.

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As a consequence, our tariff protection has come down over the years and has benefited the Europeans particularly in terms of processed food products. The bulk of their exports to Canada are in the alcoholic beverage area and in the processed food product area—for example, in confectionery. So they've benefited from the fact that the Canadian tariff protection has declined over time. But in Canada's case to Europe, we're hanging in there by our fingernails with respect to our historical exports of wheat and some other products.

As I've mentioned, the common agricultural policy of the European Union was responsible for turning Europe from a net importer to a major net exporter. Europe is the world's largest importer of agricultural products, but it's also the world's second largest exporter of agricultural products today.

The change from a net importer to a net exporter has some consequences. It has resulted in European agriculture accounting for about 50% of the total European Union budget, the common budget that's there in Europe. The political assessment has been that the common agricultural policy support to the rural sector is something that basically no European politician can ignore. Notwithstanding the fact that in some member states, like the United Kingdom, the population that's involved in agriculture is very small, about the same as in Canada or the United States, in other member states, such as Spain, Portugal, and Greece, the percentage of the population involved in agriculture is still quite high by developed countries' standards.

However, the common agricultural policy has not remained unchanged. It's under budgetary pressure. There was a recognition in the early 1990s by Mr. MacSharry, the Commissioner for Agriculture at the time, that the common agricultural policy had to change, that they couldn't constantly keep their support prices well above world levels and have all these transatlantic trade problems in agriculture.

So one of the things that was required to bring the Uruguay Round of agricultural negotiations to a successful conclusion was the recognition in Europe that they had to modify the common agricultural policy, at least with respect to cereals, to bring down the support prices to enable the Europeans to take on reductions in export subsidies. Those reforms, which were undertaken in 1991 and 1992, intensified last year when Mr. Fischler, the current European Commissioner for Agriculture, put forward further reductions in the support prices for cereals.

I guess the positive news here is that as the Europeans bring their support prices down closer to world levels, that enables them to seriously consider moving towards eventually eliminating export subsidies. What they cannot do is keep their price support levels up and the world prices down. If they're going to continue to export, somehow they have to narrow that difference.

As I say, by bringing price support levels down closer to world levels, at least in the case of cereals, there is a good possibility that in the next round of WTO negotiations, the Europeans will be in a position to move to export subsidy elimination.

The Europeans have a number of challenges in the near future. One, of course, deals with European expansion to include most of central and eastern Europe.

Currently, there are 15 member states. There are about 10 or 12 applicant countries that are currently negotiating to accede to the European Union. Many of these countries, such as Hungary, Romania, and Poland, have tremendous agricultural potential. They're still struggling in the aftermath of the centrally planned economy, and by and large their agriculture isn't particularly productive. But in terms of raw agricultural potential, traditionally this part of Europe has been Europe's breadbasket over the years, over the centuries. Therefore what the European Union of 15 is facing is a terrific expansion in agricultural production if they don't modify their existing common agricultural policy. The reason of course for the agricultural expansion would be those high support prices.

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In terms of the challenges facing Canada vis-à-vis Europe over the coming years, Europe has shifted from being a major export market to being a major competitor in third markets, but clearly we would like to improve our market access into Europe. We want to persuade the Europeans to give up their use of export subsidies. The European Union accounts for about 85% of the world's agricultural export subsidies. We want them to move more and more of the support to the rural sector, to support that is not as trade-distorting as many of the current agricultural policies they pursue.

Therefore in the next round of WTO negotiations, the one that has just started this year, we're going to be looking to the Europeans to move to eliminate export subsidies, to significantly improve their terms of market access, and to significantly reduce their trade-distorting domestic support.

I must say, to be fair to the Europeans, the position the European Union took at Seattle last December, when we tried to launch a more comprehensive round of WTO negotiations.... It cannot be said agriculture was the problem in Seattle. There were a lot of problems in Seattle, but essentially it was about what was going to be on the negotiating agenda in addition to agriculture and services. That was the major, major problem. I think it's fair to say the Europeans were relatively helpful in the agricultural discussions, and that if the other part of the declaration had come along as much as the agricultural part, we would have had a success in Seattle.

As a government, we're looking in the next round of WTO negotiations to make significant improvements in the three core areas—market access, export subsidies, and domestic support—and we're looking to work with other like-minded countries that have similar concerns, particularly the United States and the so-called Cairns group of agricultural exporting countries, of which Canada is a member. We all have very similar objectives vis-à-vis Europe in terms of disciplining in effect their common agricultural policy.

In terms of bilateral initiatives, as I'm sure many of your previous witnesses have noted, to negotiate, for example, a free trade agreement with the European Union would be extremely difficult if agriculture were included. For the Europeans, there's nothing but heartache and very little to gain by negotiating a free trade agreement with Canada if agriculture is included, because we're a major agricultural producer, we're extremely competitive, and it would require major changes to the existing common agricultural policy if we were to be a free trade member.

The reality is that for countries such as Canada, Australia, New Zealand, Argentina, Brazil, and even the United States, the way we're going to get access into the European market is through multilateral negotiations in the medium to long term.

Some countries have recently negotiated free trade agreements with the Europeans—for example, Mexico. But they have a complementary agricultural economy in Mexico where they can ship fruits and vegetables, tropical as well as temperate, in an out-of-season situation that is not directly competitive with the European production.

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But when it comes to, for example, the Argentinas and the Brazils of the world, although it can be dressed up as a free trade area, I think it would be safe to say that if there were an agreement between MERCOSUR and the European Union, for all intents and purposes, agriculture would be effectively excluded, because Argentina, Brazil, and Uruguay are all extremely efficient producers of temperate agricultural products.

To conclude, obviously we have some old challenges—the use of export subsidies by the Europeans and the lack of decent market access into the European market—but more recently, in the last several years, we've started to experience some new challenges relating to the health and safety area.

For example, one old case was the European ban on the importation of beef that had been produced with the benefit of growth promotants, and there we're into basically a WTO-authorized retaliation scenario. We've indicated to the Europeans that at least as an interim measure, we're prepared to consider compensation in lieu of retaliation, but the reality is we have to do this in parallel with the United States, because the U.S. is by far the biggest potential supplier of beef to Europe.

We've had since 1995 a de facto prohibition on the exportation of canola, or rapeseed, to Europe, because of the fact that the European approval process for genetically enhanced products is log-jammed. There's a de facto moratorium in Europe today on the approval of new, genetically enhanced varieties. What's happened is the European Commission has regulations and an approval system very similar to the Canadian approval system, but the bottom line is when it gets to the final bridge, which is an individual member state's approval, some of the member states have simply refused to take the final step to authorize the approval of these new, genetically enhanced varieties.

The bottom line is we haven't exported a tonne of canola into Europe since 1995. We had duty-free entry for canola into Europe. Although it was only a spot market—our principal markets are Japan, our NAFTA partners, and China—back in 1995 we did ship over $400 million worth of canola. So we've lost that market.

More recently we're into the bilateral discussions with the Europeans on lack of access for Canadian wines into the European Union. The principal European export to Canada is wine. Although they complain from time to time about provincial liquor boards and their practices, the reality is they have an extremely good market into Canada, which has continued to grow and grow and grow, and we have, again, lousy access into the European market. Particularly we have a premium product for which we think we can develop a very nice niche market, and that's ice wine, which is world-quality in Canada. We're in the process of trying to negotiate a bilateral wine and spirit agreement with the Europeans that would permit, amongst other things, the exportation of Canadian ice wine to Europe. We're hopeful that these negotiations can be brought to a conclusion this year.

Those are my introductory comments to give you some sort of perspective of the evolution of Canada's agricultural trade with Europe over the years.

The Chair: Thank you very much, Mr. Gifford.

Ms. Vinet, do you have anything to add?

Ms. Suzanne Vinet (Acting Director General, International Trade Policy Directorate, Market and Industry Services Branch, Agriculture and Agri-Food Canada): No.

The Chair: We'll move on to Ms. Higginson, who's with the Canadian Federation of Agriculture.

Ms. Higginson, welcome.

Ms. Jennifer Higginson (Trade Policy Analyst, Canadian Federation of Agriculture): I'm Jennifer Higginson with the Canadian Federation of Agriculture. I'm joined here today by Martin Rice, the executive director of the Canada Pork Council, who will also be making some comments in relation to the hog and the pork industry. Sally Rutherford, our executive director, is here as well and will be available to answer any questions.

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I'd like to thank the committee for the opportunity to participate in this discussion.

The CFA is an umbrella organization representing over 200,000 farm families from across Canada. Certainly, Canadian producers have proven themselves to be capable players on the world market. Over the past five years, exports of agricultural products have increased by more than 65%, reaching an all-time record of $22.65 billion in 1998.

The European Union is Canada's third-largest agricultural export market. In 1998, 57% of Canada's agricultural exports went to the U.S., 9% to Japan, and 7% to the European Union.

In terms of agricultural exports to the EU market, Canada's main exports included grains, at $339 million, oilseeds, dried pulses, other animal products, dairy, animal feeds, tobacco, and red meats.

Some of the major issues for the agricultural industry, in relation to trade with Europe, are ones we feel will be dealt with, or need to be dealt with, in the next round of trade negotiations, through the WTO. As Mike indicated in his presentation, the major issues, such as market access, domestic support, and export subsidies for agriculture, in terms of a bilateral agreement with Europe, are very sensitive issues. Their agriculture industry as a whole is very much protected, and we don't expect them to make any major concessions in a bilateral agreement, unless there's a much broader round, with more industries and countries involved.

One of the major issues for our sector is certainly export subsidies. There were some restrictions placed on spending on export subsidies in the Uruguay Round. Those restrictions were based on a base period where we saw very high levels of support being paid. So with the reductions in the use of export subsidies on commodities, especially with the rollover provisions that were allowed in some of the years in the implementation period and the low prices we've seen lately in the grain sector, there's been a resurgence in the use of export subsidies. An example of this effect on Canadian producers is the Europeans' use of export subsidies on oats into the U.S. market, which has certainly had an effect on the North American price for oats and on Canadian producers.

In terms of production subsidies or domestic support, domestic support reduction commitments were also made in the Uruguay Round. Because the levels in the base period were quite high, we're seeing that spending on domestic support for all countries is well below the actual limits in the final year.

In 1995, Canada's spending on amber programs was only 15% of our allowable limit. The U.S. was spending 27% of their allowable limit, and the EU spent 60% of their allowable limit. The U.S. and the EU spent a considerable amount on blue programs in that period as well.

The production subsidies paid to producers under the common agricultural policy 2000 called for reductions in intervention prices but allowed for compensation through direct payments to producers. We've seen a move from amber programs to blue programs in the case of the European Union. The blue programs are considered less trade-distorting than amber programs and are not subject to any reduction commitments, although from our point of view they are very similar or have the same effect as amber programs.

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One concept that's been introduced—I guess we heard it several times in Seattle, before and after—is the concept of the multi-functional role of agriculture that is being promoted by both the Europeans and Japan. We see this largely as a domestic support issue. I guess we would continue to stress that agriculture does have many different roles, but there is a need to make sure that any support paid to keep the multi-functional role of agriculture is the least trade-distorting as possible, to make sure that would fit within the green box. We'd be looking for an overall cap in spending in the agriculture sector.

In terms of market access, as Mike alluded, historical access for grains has been an issue. There have been some disputes related to changes in Canada's historical access rights in EU countries following their accession to the EU. Following the Uruguay Round, Canada pursued this issue in the WTO. While Canada did not obtain all the access it lost, some improvement was achieved.

Therefore, as a lesson learned, we must be very cognizant of this past experience, as other countries look at accession to the European Union. The countries of particular interest from the agriculture side, and particularly the grains side, are Poland and Hungary. Martin will talk about other countries the pork industry is very interested in as well.

In relation to the administration of tariff rate quotas, Europe has taken a somewhat different approach from Canada in the administration of their TRQs. In the case of their meat TRQ, the EU has aggregated all of their meat and poultry products under one TRQ, which has resulted in very little pork access. The same has occurred in the aggregation of their coarse grains TRQ, resulting in very little access for barley.

There's also concern regarding Europe's application of the WTO minimum access guidelines. Specifically, the concern lies with the size of the TRQ and the use of threshold and reference prices in setting duty levels.

One of the major issues in trade with Europe is non-tariff barriers. There are many issues under non-tariff barriers that either have affected or have the potential to serious affect trade in agricultural goods.

In terms of beef hormones, there was a dispute settlement panel. Canada won the panel, but the EU continues to refuse to import beef produced with growth hormones. They're prepared to pay fiscal penalties rather than accept the ruling. Therefore we can't ship any beef that is produced with hormones into the European Union, even though the safety of those products has been endorsed by Codex and Canada's own scientific reviews.

In terms of equivalency of standards, there is certainly a need to harmonize and establish equivalency in regulations and standards. There has been progress in this regard. The Canada-EU veterinary equivalency agreement, a framework to move toward developing equivalences, was agreed to in December 1998, which was a positive step. Work is also occurring within the OECD to harmonize regulatory requirements in pesticide regulations.

In terms of genetically modified products, there has been great debate in Europe over the use of modern biotechnology and genetically modified organisms. Canada is still unable to export agricultural products produced from genetically modified seeds into the EU, which largely reflects the uncertainty in a number of EU countries and among many members of the general public in Europe.

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In terms of this issue, this is just the beginning. There are some main issues we need to deal with both domestically and internationally, certainly in terms of establishing definitions of genetically modified or biotech products, establishing labelling rules, and dealing with tolerance levels. Canada is dealing with this domestically, and it must also be pursued internationally.

Recently concluded negotiations of the biosafety protocol demonstrated that there is a difference between the EU and Canada on some biotechnology issues. One of the areas of interest from the protocol negotiations was the discussion around the precautionary principle or precautionary approach. The CFA held a workshop last week looking at both multi-functionality and the precautionary approach, and we heard many different views from European and U.S. officials and industry representatives. I think it's only the beginning of looking at that.

We would stress that we must continue to ensure that risk assessments are based on sound science and that we don't allow politics and other considerations to be brought into these risk assessments.

In terms of future WTO agriculture negotiations, Canada is trying to achieve substantial further liberalization of agricultural trade, whereas for the EU we would see agriculture as being still very highly protected and very dependent on the use of export subsidies and border protection against imports of many agricultural products. Any major movement in this regard we would expect to see through the WTO. But with the size of the market, we're certainly interested in looking at any areas where there is common interest and where bilaterals may be reached.

I'll now turn it over to Martin.

Mr. Martin Rice (Executive Director, Canadian Pork Council): Thank you very much.

I thank the CFA for inviting us to join them in the presentation today, and compliments to this committee for deciding to take a look at our economic relations with Europe.

It tends to be the European Union we focus on when we talk about Europe, but, as Jennifer mentioned, we have been spending a bit more time looking at the EU candidate countries. There are about a dozen now that would like to join the European Union. While they are not as strong economically, together they do represent a fairly large population base.

We are most interested in trade. That's the form of economic relations we spend most of our time looking at. With regard to Europe, it's mainly the absence of trade that has been the major subject of annoyance, conversation, what have you.

I will divide my comments between the European Union and non-EU countries. The more the agricultural sector gets involved in trade, the more frustrated they become with the behaviour of the Europeans. I don't want to pretend that they are alone in practising trade-distorting and trade-limiting measures and policies, but I think it's the scale they operate at and how they have been able to cling to these measures for so long and really kind of frustrate the intent of agreements such as the Uruguay Round in, from our point of view, as many areas as they can that concerns us.

They did finally agree to a minimum access, but the way they defined the minimum access, as Jennifer has already mentioned, is quite crafty and quite inconsistent with the intent of the Uruguay Round. We expected them to make a minimum access that would be determined according to their internal consumption of pork. What they did was they aggregated different meats that were calculated on that basis, and then, by being a large importer of lamb, beef, and so on, they were able to open up for a fairly small amount of pork. Nevertheless, we were quite excited by that prospect.

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But in terms of actually implementing their tariff rate quota, they broke them out into many different categories. I think that is quite inconsistent with the way Canada did it. If you look at the utilization of tariff rate quotas, Canada's quotas are much more accessible and usable than has been the case in Europe.

We continue to face EU surpluses in third-country markets, and these surpluses are within their obligations of the amount by which countries agreed to reduce their export subsidies in the Uruguay Round. Nevertheless, in having to live with what the market provides when such a big player in that market can export as they wish, with very sizeable amounts of export subsidies, and does not really offer any meaningful access into their own market, we're having to compete with a much larger supply for a much smaller demand than would be the case if Europe, like us, was open to the world market.

We have a brochure, and I think copies have been made available to you. At least half, maybe more, of the trade issues we address in our trade negotiating objectives are quite specific to the European Union, in the area of technical barriers, export subsidies, import quotas, and so on.

The European Union in particular has been championing some new concepts, such as multi-functionality, which Jennifer mentioned. The Cairns countries are not alone, I think, in having some skepticism about this, but I think most developing countries do too. It is seen as a means by which Europe can continue to justify high protection and export subsidies by citing these non-economic benefits of agriculture, such as recreation and having a pleasant rural landscape for the citizens to enjoy. I don't think Canadians are any less interested in those externalities than Europeans are.

The Chair: Mr. Rice, I know Ms. Higginson talked about multi-functionality. Do you have a definition of what exactly multi-functionality is?

Mr. Martin Rice: That will be a good question when you go to Europe.

I attended some seminars in Seattle. I think the Europeans think they're the only ones who really value these non-monetary aspects of agriculture and that therefore they should somehow use this idea of non-economic attributes of agriculture as a basis to kind of give agriculture special treatment. I think we can acknowledge that there may be some special obligations for agriculture to meet in terms of environmentally sound production and so on, but we want to see any such obligations being no greater for us than for their own producers. If we meet their standards, for example, what they regard as proper animal welfare standards, then there's no basis on which to limit our access to their consumers. That's the way we would want to look at it.

So multi-functionality should not become a trade-restricting criterion. Certainly, there will have to be a great deal of debate within the context of the trade negotiations to put some parameters on this.

Another principle is the precautionary principle, and we would suggest that the dangers one can encounter when you go into this are apparent. In France right now they are preventing British beef from going into France, even though France itself is very frequently encountering cases of mad cow disease in their own cow population. Nevertheless, they continue to say, no, British beef is not allowed in here because we don't believe yet that the risk has been eliminated.

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Once we open this I think it's probably a Pandora's box, where once one has been given room to set their own self-interest as giving them a justification to exercise this so-called precautionary principle.... So both the precautionary principle and multi-functionality will certainly be subject to a lot of debate, I'm sure, before countries like Canada would want to accept it as a legitimate area for trade access.

So we would certainly see agriculture, agrifood, in Canada being far too important to ever let it become, as it was before the Uruguay Round, an area for exemption, a special treatment sector, which should be subject to different rules from the rest of the economy. Agriculture does have unique characteristics. But we do need to have these rules that at least we have started to attain for agriculture that give exporters some degree of certainty of access and, in the event that access is impaired, a means of addressing grievances, unfair treatment.

So we would want to avoid what Mike made mention of in MERCOSUR, for example, where agriculture and agrifood could be exempted from a free trade agreement between Europe and the MERCOSUR countries. Whenever I've spoken to people in Argentina and Brazil, I am amazed that they would let Europe carve out agriculture and let it carry on these policies when countries like Brazil and Argentina have, like us, a huge interest in agriculture as one area that they have a comparative advantage in. It's like negotiating from a self-imposed handicap.

I think I'll move over to other parts of Europe for a moment. We've been looking for some time now at the question of these other European countries, such as Poland and Hungary, the Czech Republic, Slovenia, Slovakia, and a few others, joining the EU. We have in the last decade become substantial suppliers of pork and, in Poland's case, grains, oilseeds, and some other agricultural products, including tobacco. We know what happened to our cheese market into the U.K. when they joined the EU, and other examples, which we would hate to see happen, and say must not happen again. We'd be seeing countries whose population I think here exceeds 150 million in these EU entrant countries.

We would be quite favourable to anything this subcommittee might come up with from observing the European situation that encourages our federal government to take steps that would secure at least what we have now as terms of trade with those countries, certainly to have our trading rights with those countries maintained when they were to join the EU. We ourselves, not knowing exactly how these rules work, thought maybe Canada should initiate free trade discussions with some of those countries, like Poland, Hungary, and so on, given that the European Union has had free trade discussions with some countries in our backyard, such as Mexico and MERCOSUR. However, EU nations are not able to carry on any bilateral agreements on their own. If they join the EU, they have to give up all of their bilateral trading agreements with other countries.

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These countries right now, on the basis that they hope and are quite confident they're going to join the EU, are actually negotiating their way out of all the bilateral deals, as I understand it, that they have had. When they join the EU they have to be free of any of these non-EU trading arrangements.

So that's put an end to that, but we see other areas than tariffs in our terms of trade with those countries that to the extent we can maximize the terms of trade into countries like Poland and Hungary, before they join the EU, we should do so. At the same time we look at the prospect of those countries joining EU as a powerful force for the European Union to achieve further reforms in their own common agriculture policy.

There was an initiative called Agenda 2000, which was a European Union initiative in 1998, perhaps, that was proposing some fairly significant reforms in the common agriculture policy, including one that would have brought their internal grain prices down closer to world levels. That was based partly on the need to bring the cost of their policy more into line with something that would allow them to bring in these other countries.

At the end, they did not achieve that reform or the level of reform needed. I think most agree that there will be further major reforms needed before they can afford to bring in those other countries, reforms that may not.... I question the appetite that exists within the larger EU countries to accommodate former east Bloc countries. I think it will require a great deal of political courage in Europe to actually extend the EU to include those other countries. I personally sometimes wonder still if that whole process may take longer than some of the hopeful candidates would like to see, and to the extent that there is any abandonment of that process, I would hope that we could entertain some bilateral discussions with countries like Poland and Hungary.

In closing, looking at the suggested action plan the parliamentary research branch put together, they tend to focus on these so-called key European capitals that the committee would visit, and while this is important, our experience has been that Canada—and I don't want to be unfair with ourselves. Relative to the U.S. we are a smaller player, and I think we tend to sometimes have more common interests with the smaller players in Europe, such as the Netherlands and Denmark, and even Sweden and Ireland, countries that are doing very well economically. On a per capita basis probably they've been developing much more rapidly in the last ten years than say Germany and France have, and they tend to be, certainly Denmark and the Netherlands, much more open to influences and trade outside of Europe than we have seen anyway from France and Germany.

So we would suggest that you wouldn't want to ignore visiting a couple of smaller countries and might see much more interest in more economic links between our continent and theirs. Certainly they tend to have a more favourable attitude to liberalization of agricultural trade because they see opportunities for importing, reprocessing, and re-exporting, and also exporting within the EU.

The European Parliament, which I think is still based in Strasbourg, is certainly a big player now in the European Union scene. Then again we suggest that the non-EU countries not be completely overlooked in looking at our economic relations with Europe.

Thank you.

The Chair: Thank you very much, Mr. Rice.

And last but not least, Ms. Christine Elwell.

Welcome.

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Ms. Christine Elwell (Senior Policy Analyst, Sierra Club of Canada): Thank you. Good afternoon.

The Sierra Club of Canada is a national environmental group with five regional offices across the country. We thank you for inviting us here today to speak about Canadian-European affairs, particularly on agriculture.

I hope to cover a couple of points today, and I think I'll talk about genetic engineering and the trends in the market that we see right now. I'll mention the biosafety protocol and suggest that this was a better forum to deal with these issues rather than the WTO.

I'll touch on Europe's new paper on the precautionary principle in food safety, and then finally make some recommendations on Canadian implications in terms of market access and in terms of rules, and hopefully, talk briefly about recommendations to improve at least the bilateral relationship.

But before I do so, I must flag our respectful disagreement with Mr. Gifford's analysis on Seattle. We were in Seattle and our read of the people there was that agriculture was a big issue. It was not the only issue, but it certainly was a critical issue that civil society was wanting to address.

I think there is consensus on export subsidies, but, by and large, people appreciated the non-trade concerns, the multi-functionality of agriculture. There's this great line: put the culture back in agriculture. So I think there was some sympathy there with non-trade concerns, particularly as they related to rural life, environment, and health—all the good things.

Also, on the issue of biotechnology, we were very disappointed when the council seemed to be agreeing to a WTO working group on biotechnology when their 15 environment ministers were disassociating themselves with that agreement, because there's just a huge split and it's very controversial.

So we were very pleased when the Seattle negotiations fell apart, and particularly happy that a working group on biotechnology was not established there, leaving an opportunity for the Montreal forum on biosafety agreement to then have an opportunity to set the rules. So we are very pleased in terms of how the timing went.

On genetic engineering, which I think is, as you indicated, an issue that's important, there are huge influences that happen to Canadian society that are very different from Europe, but we're also influenced by Europe. For example, we're influenced when the British Medical Association calls for an open-ended moratorium on GE crops due to lack of scientific consensus. And Canadians are confused by double standards when large retailers or food manufacturers go GE free in Europe but then the same companies don't go GE free here. So consumers wonder why we are subjected to lower standards. Why do the Europeans get higher standards? So that's out there in the Canadian public's mind right now.

Recently we've seen an incredible turn in the retail market around the world. This goes far beyond just McCain, who said they'll take no GE potatoes. We've seen Frito-Lay questioning their suppliers. We've seen Seagram make a statement on their GMO content. We've even seen McDonald's follow McCain's lead.

We also have an entire health food sector working to go GM free. The Canadian Health Food Association has recently called for mandatory labelling, and already a company called Yves, one of the most popular health food manufacturers, has committed to GM free on February 3.

These decisions are being reinforced at an international level. The European Union remains closed, and just recently the German Minister of Health banned Liberty 176 maize, citing concerns about antibiotic-resistant marker genes. As a mother with children, I've really held back with giving my kids antibiotics. I'm listening to the concerns about antibiotics and not using them liberally.

More recently, and probably more importantly, given the interest Canada has in the Japanese market, Nestlé's Hong Kong went GE free. Basically you have Europe shut out, and increasingly Japan and Asia being shut out, leaving North America pretty much surrounded. When a company like that is going GE free in both Europe and Asia, it's just a matter of time and predictable common sense before it happens here too. Canadian exports may be immune to some of the European activity, but their markets are closing in. In fact, if you look at the United States, many licences for the use of biotechnology crops are coming up for renewal. With all this public concern, it is quite possible they won't get renewed.

• 1625

So our advice to our friends in the agricultural sector in Canada is to keep your options open. Please don't get locked into a GE world, because the markets are turning.

That concern is spreading not only in terms of genetically modified organisms—canola and whatever—but also to animal feed, a substantially important sector. So we're advising egg producers, go GE free in your feedstock and you'll do well in the new markets.

Last month the largest retailer in the U.K., Tesco, removed GMO from all its animal feed in their house poultry brand. I know I look for free-range chickens for my family.

Sun Valley, a poultry company and the largest British importer of soya meal, followed suit. But what's really significant is that Sun Valley is owned by Cargill. In a statement to Parliament, they said the animal feed market would soon follow the way of the consumer market.

In the U.S. farm journal, High Plains, a company called Fimat, one of the largest brokers, predicted a 50% drop in GE corn and soya. This follows recent Reuters polls.

In polling results last year, we've seen a doubling of public awareness, to the point where 80% of consumers are now aware of this issue; 70% of the people think the food itself is safe, but the polls show that 50% don't trust the government's regulatory system in terms of its effectiveness.

The most recent statistics say that 97% want labelling, 68% won't eat GE foods, and 50% want an outright ban. The problem is that of the 29% of consumers that see a benefit in GE, it's a production benefit, and they don't even see a direct benefit to themselves. Meanwhile, 32% see food safety concerns, and another 29% agree with insurance companies that the risk of GE is unknown but could be quite high in terms of liability around GE escapes into the environment and public health concerns.

But the genetic industry is fighting back. First they tell people that you have to trust them that it's safe, and this debate is surrounded by respected and concerned scientists. Yet we saw 20 Health Canada scientists come out and say they don't have the resources to do proper testing. Little independent testing is done at all. We see conservative groups, like the British Medical Association, also calling for a moratorium. We saw 230 world scientists sign a statement at the biosafety protocol calling for a moratorium.

There are some pro-technology scientists out there who counter that GE is fine, but what that shows to the Canadian public is that there is at least a split in terms of a scientific opinion, and the split for us is good enough, because we just want to show that here's a situation where we need to be very cautious.

The biosafety protocol officially recognized the dangers in shipping GMOs, and this made big news. I'd like to take a minute shortly to give some highlights of our views on that protocol, but my main point is that consumers, the market, are aware of these issues, they're very sensitive, and it would be prudent for government, as well as market players, to take those concerns seriously.

The industry does tell the public that this is the most tested food ever, but the problem is the rigorousness of the tests they conduct, and they conduct in secret. It's very hard for the public to trust documents to which they don't have access. The very few approvals we've seen by the U.S. FDA amount to junk science.

Greenpeace International recently did a report on the GE rhizobium bacteria approval case. This soil bacteria had four new genes inserted, and one of them had not even been identified by the scientist who did the work. In this case, four of the six scientists disapproved, one agreed, one abstained, and one quit. Nevertheless, it received approval under U.S. FDA and may be available in Canada within two years.

The man who invented GE fish for the Canadian government, Dr. Robert Devlin, said he can't come up with a risk statistic to test the dangers of fish to wild populations.

• 1630

All that is evidence of great public concern despite the industry's assurance of rigorous testing. That is the basis for the public concern we've seen, and it should be a driver for industry and government in setting appropriate policy responses.

As a note to Mike's point about lousy access of Canadian agriculture to Europe, let's look at the reason for such lousy access. If you look at the list of trade disputes, we have the fur-trapping issue; we have asbestos coming up any day now—the France-Canada asbestos issue; there's beef hormone; GE; sustainable forest products. All these commodities are issues of great concern, and I think we'd have better access to Europe if we were to come to an understanding about the values we place on products and how they're produced. We're more likely to get there through cooperative activities than trade disputes.

On the biosafety protocol—and by the way, I have a Greenpeace International summary of the biosafety protocol and their impressions of it, which I'll leave with you—generally speaking, environmental groups are happy that this biosafety agreement happened. As I indicated at the top, we prefer that the forum for these rules be a UNEP—United Nations Environment Programme—forum, rather than a WTO working group. So in terms of the venue, it's certainly a better venue.

We're very happy that the precautionary principle is front and centre in terms of the decision-making around the biosafety obligations. We're pleased that one agreement wasn't subordinated to another. The idea of a saving clause, that if there were a disagreement the WTO would trump any inconsistent provisions in the biosafety protocol, didn't happen. So we're pleased with that. No one body trumps the other.

There's disappointment on the labelling. It doesn't look like we'll get that for two years. There's some disappointment on segregation of containment versus seeds that are covered by the protocol, but we think these are areas we can work in, in time, and have something to build upon.

While there weren't as strict enforcement provisions as we would like, nevertheless there are provisions that relate to trade with non-parties to the biosafety agreement, which follows a similar pattern with other multilateral environmental agreements, such as the Basel Convention, or the convention on endangered species, where this advanced notice and consent formula is followed and you treat non-parties to the agreement the same as you treat parties, which in effect broadens the scope of the agreement to third parties who are not a party to it, if they want to trade with a party of the agreement.

So it's a mixed bag here, but more or less, as I said, we're happy with the forum.

By the way, as another reference, I have a recent International Institute for Sustainable Development briefing note on the biosafety agreement and its analysis, and I'd be pleased to leave a copy with you.

The Chair: Ms. Elwell, if you could file copies of that with the clerk, the clerk can ensure that everybody gets a copy. That would be wonderful. Thank you.

Ms. Christine Elwell: Thank you very much. I'll do that.

To get back to your issues, the things you're looking at—and may I say, I think it's just marvellous that you're taking this on—bilaterally you have a number of initiatives, the Canada-U.S. joint action plan and ideas about whether to have a free trade agreement.

First of all, let me say that we don't think you're going to solve lousy market access by yet another trade agreement. I believe it's the Treaty of Rome that says relationships between Canada and Europe should be based on the three pillars—not just economics, but human rights and sustainability. So a bald trade agreement alone is not going to solve your problems; we need something more comprehensive, with more opportunities for understanding each others' concerns.

Another recommendation I would make on that front is when you're having your bilateral discussions and your working programs, they not be limited. This is with respect to government and industry. I think you should have NGOs at the table, particularly because we're often the ones that are causing trouble for you. It seems to make sense to have us at the table.

• 1635

If we have opportunities to work with our European counterparts on what their issues are and to get at their concerns, we might be able to try to bridge some of that, which you're not going to get access to otherwise. My recommendation is that you broaden out your delegations. I could use a trip to Europe in May—no, I'm just joking.

In all seriousness, I think you'll get further when you have complementary parties at the table and not just focus on government officials and industry.

I'll leave it there. Hopefully we'll get a chance for some questions and some dialogue. Thank you very much.

The Chair: Thank you very much.

Colleagues, we'll start questioning.

Is Mr. Casson going to...?

Mr. Deepak Obhrai (Calgary East, Ref.): Mr. Casson is going to ask the first question and then I'll go back after—

Mr. Rick Casson (Lethbridge, Ref.): If there's any time left.

The Chair: Yes, that's if there's any time left. Thank you very much, Mr. Casson.

Mr. Rick Casson: Thank you, Madam Chairman.

I appreciate you all being here to put forward your thoughts.

Mr. Gifford, I'd like to address my first question to you.

Mr. Deepak Obhrai: Mr. Gifford, he is the agriculture critic.

Mr. Rick Casson: Mr. Calder and I are on the agriculture committee. We have been studying safety nets and looking at problems in the agriculture industry and at things we could do to put some long-term stability back into it.

The EU and American subsidies come up constantly as being one of the main causes of low commodity prices in the world. We're told that the Europeans subsidize their food because of the fact that at one time in history—or more than one time—they ran out. They're never going to let that happen again. They're never going to go hungry again and they'll do whatever they have to do to keep that.... That I can understand, but is there not a way that they can ensure a food supply for their own countries, for their own people, without distorting the world market to the degree they seem to? I'd just like you to comment on that.

Mr. Mike Gifford: Madam Chair, I think originally the common agricultural policy was developed in the aftermath of the Second World War, when much of Europe had experienced rationing and starvation. The common agricultural policy was a blueprint to maximize production of agricultural output in Europe, basically at any cost. They set prices at German levels, which, for more efficient countries like France, meant that it was basically a licence to print money.

Most of the benefits of the system have been capitalized into the fixed assets, which is land values, and that's why you see, for example, in eastern England or the Paris basin, farmland that's growing cereals valued at say $7,000 or $8,000 Canadian. The reason is that the more support the government provides, the more likely it is that those benefits are going to be capitalized into the fixed assets.

They realized that the common agricultural policy they introduced in the early sixties is extremely trade distorting for third-country competitors such as North America and Latin America. It's also very disruptive of developing countries, because when the Europeans dispose of their structural surpluses with the benefit of export subsidies, they dump them on the international market, which acts as a discouragement to production in developing countries that are basically trying to get their returns out of the marketplace. If their domestic market is distorted by these subsidized products, then clearly it affects developing countries in Africa just as much as the agriculture-exporting countries in Latin America.

All this to say that slowly there seems to be a grudging acceptance in Europe that, although they're going to retain the right to support their rural sectors, they have to do it in ways that are less trade distorting. That's why very few Europeans today would bet money that they're going to continue export subsidies forever and a day. They're going to be phased out. The only question is, how fast? I think that's accepted in Europe.

At the political level, certainly, Commissioner Fischler has made it very clear that his objective in reforming the common agricultural policy is to progressively reduce those price supports down to world levels and to compensate producers by direct income payments.

• 1640

Now, in the short term, perversely, CAP reform is going to cost a lot more treasury dollars, because in effect the consumers are now paying the price supports. That's a tax on consumers. In the future, it's European taxpayers who are going to have to be paying more of the support that Europe's providing. But it's coming and they're going to have to change. As we said earlier in regard to the impact of central Europe and eastern Europe on the costs of the common agricultural policy, if it doesn't change it is just going to be phenomenal.

So they are changing. I think it augurs well for the next round, but the politics of agriculture are as sensitive in Europe as they are in North America, and it's going to be difficult. But, as I said, I think we're—

Mr. Rick Casson: So for the timing, then, with the expansion and the inability to keep the levels where they are in the European Union, what do you think the timing is? What hope is there? Is it a 10-year window or a 15-year window for any relief from lower EU subsidies to help our producers?

Mr. Mike Gifford: In the short term, trade negotiation in WTO isn't going to solve short-term commodity fluctuations such as we have today, so it's in the medium term to the longer term. I think the Europeans acknowledge that they're going to have to reform their common agricultural policy yet again, probably in 2002-03. It's clear already that those changes are going to have to be made.

If they're going to accept increased disciplines in the WTO, which they're anticipating.... Up to now, in previous negotiations, although Europe is the world's second-largest exporter of agricultural products, all of their negotiating tactics are predicated on protection of the domestic market. They forget about, they ignore, their export interests. Again, under Commissioner Fischler in the European Commission, there's more emphasis now being placed on.... Europe, if it's going to compete in the future, has to be able to compete for external markets as well as the domestic market. Again, that augurs well, I think, for the next round.

Europe is changing, but in the short term, basically, the reason we have low prices today is four good crops around the world in four consecutive years. It is being compounded by the use of export subsidies, export credit, food aid, and everything else that has been used to try to cushion producers around the world. But of course, even if you had free trade around the world, you would still have commodity price fluctuations because of the nature of the beast, i.e., fluctuations in supply caused by weather.

Mr. Rick Casson: Do I still have some time?

The Chair: You have just one minute.

Mr. Rick Casson: What percentage of the European agricultural production is exported? Do you know that?

Mr. Mike Gifford: You've got me, I'm afraid. I couldn't give you an answer just off the top of my head.

Mr. Rick Casson: I was just wondering how much.

You mentioned that bilateral negotiations probably aren't the way to go. However, you then mentioned a bilateral agreement on wine.

Mr. Mike Gifford: Yes.

Mr. Rick Casson: It seems they have a little better deal with us than we have with them; we send a million dollars worth of wine their way and they send $350 million our way. You feel that is not the way to go.

Mr. Mike Gifford: No. What I meant by saying I didn't think there was much potential for a bilateral free trade agreement because of the difficulties for the Europeans dealing with agriculture.... But that shouldn't prevent us from, on a commodity-by-commodity basis, going after specific access barriers.

The wine access is a technical barrier. Basically they haven't approved our wine production and growing practices. It's the use of a technical barrier to limit access as opposed to using a health and sanitary barrier or a tariff barrier.

Most of our access problems into Europe, the big ticket items, like grains and pork, have nothing to do with health and sanitary measures; they have everything to do with high, traditional tariffs. We're talking about the old barriers to trade here, not the new ones. The reason we have lousy access into Europe is not, by and large, because of health and safety issues; it's because of extremely high protection at the border, using conventional tariffs by the Europeans.

The Chair: Thank you.

[Translation]

Ms. Alarie.

• 1645

Ms. Hélène Alarie (Louis-Hébert, BQ): It is my impression that we very much follow what the United States does in our trade practices. When we were in Seattle, that had a great influence, even though the United States, in some ways, are not doing us any favours with the domestic subsidies they are giving their producers.

This was also apparent in the Biosafety Protocol. The United States did not have a voice, but essentially, Canada spoke quite regularly for it. That may be understandable, given that 57% of our exports are to the United States. However, since we are talking about Canada's relations with Europe here, that puts us in the exact opposite position to Europe, where everything is different: their production and export methods, everything.

I was somewhat uneasy, after the Biosafety Protocol, to hear Mr. Glickman talk about the precautionary principle in a conversation. He said—and this is my interpretation of his comment—that the United States could disregard the principle, that they could get around it. And when he spoke about mandatory labelling of genetically engineered food, he said that labelling such a food product would be like putting a red light on it. That is my free translation. I came here unexpectedly.

So, I have concerns about this. For example, I am definitely very interested in genetically modified organisms, but I'm wondering why Canada is not more proactive. We are wasting time—months and months. I absolutely agree with those who say that we need to understand the scientific aspects of this. It is not an emotional issue—it is a scientific one. But for the time being, we don't even have this information.

We are establishing committee after committee, and I don't see anybody with responsibility for managing all these committees. I call that muddling the issue. So I would like to hear your comments on my concerns.

[English]

The Chair: Who would like to answer?

[Translation]

Ms. Hélène Alarie: Anyone at all.

[English]

The Chair: Mr. Gifford, would you like to start?

Ms. Christine Elwell: Excusez-moi, my children speak French, but....

I would just like to say that I think it speaks to the aggressive trade nature that the Canadian government is pursuing. There seems to be no flexibility. We always seem to be not on the side of angels on issues. I don't know why we're so aggressive for markets that are ill-advised when we have such a bountiful environment here and are able to provide such wonderful baskets of goods for the world.

Why are we not focusing on the high end, the quality, rather than trying to force-feed Europeans hormone-treated beef that they just don't want, forcing asbestos on countries that just don't want it, as well as genetically engineered crops and seeds?

I don't know how to explain it, but it seems to be “market access or bust”. There doesn't seem to be the sensitivity that the relationship is not just an economic trade relationship, that there's a trust—the culture in agriculture. I don't mean to be harsh, but I'm going to call it like I see it. We're very aggressive in terms of opening markets, even if the consumer doesn't want it. It saddens me that as a Canadian NGO we have to explain that our government just bulldozes ahead. I don't know why it's like that, and I'm hoping the politicians can make our government account for its lack of sensitivity.

The Chair: Ms. Rutherford, you stepped to the table. Did you want to comment on that?

Ms. Sally Rutherford (Executive Director, Canadian Federation of Agriculture): I'll let Mike do it.

The Chair: Okay.

Mr. Mike Gifford: Madam Chair, I'd just make the obvious point that if the consumer doesn't want it, it won't be sold. You can produce things all you want, but unless you have a market for them, they're just going to go into stockpile or they're going to rot. Clearly, the consumer in the marketplace will determine what is produced and what is sold.

The whole question, though, is the extent of government involvement in terms of say mandatory labelling versus voluntary labelling. I won't try to get into all of that, but I'll simply say that we do not apologize for being aggressive in seeking to improve our market access to the European market—a market that used to account for over 40% of our exports and which in 1999 was down to 6% of our total exports.

• 1650

We've seen what good access to a market can do for Canadian agriculture. When I joined the department back in the mid-sixties, our exports to the United States were considerably less than 20% of our total exports. Today they're well over 60%. The reason for that change is that we do have good access opportunities into the American market.

Our access to Japan and to Europe in particular is severely curtailed. At the margin there are health and sanitary issues, but the bulk of those barriers are the good old conventional tariff barriers, and that's basically what we're seeking to improve. We want to have the same opportunity to serve the European consumer as the Europeans have of serving the Canadian consumer.

Basically, we don't want technical measures that are otherwise legitimate to be used as disguised barriers to trade. I mean, there's not one country that's a member of the WTO that doesn't subscribe to the view that they reserve the full right under the WTO to take whatever measures necessary to protect human, plant, and animal health and the environment. The issue is when these measures are used in a discriminatory fashion, or when they're basically arbitrary and the decisions are political rather than based on science. Those are the issues we are trying to address.

A number of people have referred to the biodiversity protocol. Well, it's not a question of one trumps the other. They're complementary. They're not mutually exclusive. There's nothing wrong with having an environmental agreement on biodiversity that talks about what the terms and conditions are in terms of trade in products that are genetically enhanced. But the WTO is the international agreement that deals with trade, and therefore there's absolutely no problem of having these two international agreements coexisting. What people wanted to ensure is that you didn't have two contradictory agreements that were mutually exclusive. And I think the reason most people are satisfied with Montreal is that basically they were complementary to one another rather than competitive with one another.

Thank you.

Ms. Sally Rutherford: Perhaps I can just speak briefly.

I think, as Mike has pointed out, the basic trade problems we have with Europe are not with biotechnologically altered products. It's with pork. There aren't any GM pigs that we're trying to sell to Europe. It's also with wheat and those kinds of products. Those are by far the bulk of the agricultural problems we're having in terms of access. They've been there for a while. We were hoping we would be able to solve those problems in the last agreement and it didn't happen. They were quite crafty in the way they designed their administration system in the end. You have to give them credit for being that crafty, and we have to try to make sure they're not quite as able to do it again the next time.

In terms of the biotech stuff, at this point in time the Canadian government, through the processes that exist in this country, has determined that the products for sale in Canada, whether they're biotechnologically altered or not, are safe to eat—they're safe for human health and they're safe from an environmental point of view. One can agree with that or not agree with it. There are those who would consider milk to be a dangerous product overall. I mean, everyone is permitted their opinion. So to say we should not be trying to sell to other countries products that we are legally permitted to sell to Canadians doesn't make a lot of logical sense. As Mike pointed out, if consumers choose not to buy those products, they don't have to.

While we hear a lot about other countries and the regimes they have to label products, the truth is there is not a country in the world that actually has a functioning labelling system, certainly not a functioning labelling system that can actually be accredited, tested, or brought through. There are lots of numbers, there are lots of protocols, but they're either not actually being enforced, or they're on paper and really aren't being enforced at all or they have been retracted.

• 1655

In terms of things like thresholds, the Europeans, for example, simply picked a number out of the air in terms of their 1% threshold. There is no precedent for that. There is no scientific evidence as to why it should be 1% versus anything else. There really is a bit of a difficulty in trying to determine what it is you should be dealing with there.

Where I came from today was the biotech labelling process, and I do take a bit of an exception to being told that I've wasted my entire day, a good chunk of last weekend, and quite a few days over the last few months. I think the people who are sitting at that table are really very serious about what they're doing. Goodness knows that we're not in any way, shape or form trying to pull anything over anybody's eyes.

The discussion we had today was about how you actually deal with these issues from a scientific point of view. The truth is that if you're actually going to seriously decide that you're going to have a labelling regime, you're going to have to agree that, to some extent, you're going to label entirely based on science, which means we can only go to here. If we're going to have a mandatory labelling system in this country at this point, and one that is based entirely on science and provable science, we would be labelling a very small number of products. I think that's the truth of it.

We also then have the problem of trying to label products that come from other countries. How do you deal with that? You're trying to deal with regimes that you know you can't trace back in terms of product and processing.

The whole issue of labelling and truth in advertising and all the rest of it becomes a very complex issue. It's not as simple as saying we are going to mandatorily label and that there will be a label on the product next week. That's something that has become painfully obvious to all of us in trying to work through this. In truth, with the work we're doing, it doesn't matter whether it's a voluntary label system or a mandatory label system. The work we're doing is going to have to be done one way or the other. You have to decide what it is you're going to label before you label it.

I have one last comment in terms of the biosafety protocol. With all the work that I've done on endangered species, I have to admit that I find it really interesting that an environmental agreement has been used to effectively set up trade barriers, because it doesn't actually deal truly with biosafety. If we were serious about dealing with biosafety, we frankly wouldn't be selling canola to a lot of countries, because it's not a product that's grown in a lot of countries. We're dealing solely with genetically modified products, and it's a bit of misnomer to think we're actually doing anything other than that.

[Translation]

The Chair: Just a brief question.

Ms. Hélène Alarie: I would just like to make a comment. I do not fully agree with what you say, Ms. Rutherford. Clearly, we need to have another debate on this, whether it is scientific or otherwise, and we need to have the information we are missing at the moment.

I come back to what you were saying, Mr. Gifford. If we want to export to Europe, we should perhaps listen to the Europeans a little more and be a little more concerned about what they want. I think that is a great problem, and I see that they are exporting more and more to developing countries—at least more than the 9% we export to them. That was my final comment.

[English]

The Chair: Thank you very much.

Do you want to reply to that? No? Okay.

Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Madam Chair.

On the big issue here, Madam Chair, I might suggest a person to have appear in front of us. That would be Dr. Gordon Surgeoner, from the OAC at Guelph. He is very much into this issue.

As a farmer, I would prefer to see the emotion of this issue taken out. Let's deal with the science of it, because that's where the problem falls right now. Quite frankly, with the way agriculture is changing, it's an industry that has to change quite rapidly, because we're making more and more people every day. Therefore, agriculture becomes more intensive and it becomes more environmentally sensitive. These are all issues that we're going to have to deal with, because we're going to be feeding 10 billion people by the year 2040 or 2050. Right now, we're not producing enough food to meet that figure.

• 1700

All the things we're talking about right now are things that we should be dealing with proactively both in the future and right now, presently, because that's how everybody in this room and on the face of the earth is going to get three squares a day.

Mr. Gifford, I'm curious about the WTO negotiations that are coming up. I know there was damage done to the negotiations in Seattle because things got off on the wrong foot. I'm wondering how much damage has been done. We obviously have been a leader in subsidy reduction in this country, and that has been to the detriment of some of the industries that we have here in agriculture. We went farther than any other country. If we got into the situation in which the other countries aren't going to move any farther on subsidy, how many steps backward could we take without triggering a countervail?

As Sally stated, the Europeans have been very shrewd on what they have negotiated. They have negotiated the carry forward clause, for instance, and that ends on December 31 this year. In your opinion, do you think there's any chance of the Europeans using that? I know what the end result would be from it.

Also, as a poultry farmer, I'm watching dairy with a lot of interest right now, because they're fooling around with export contracts. You and I both know how supply management was set up. I'm concerned as to whether or not these export contracts might put supply management in a not very good position. As a politician, I am here. As a poultry farmer in my other life, I am here to defend supply management to the best of my ability. But I'm also put into a situation in which I have to have something that's defensible.

Those are my questions for the time being.

Mr. Mike Gifford: Madam Chair, in response to the first question about how much damage was done as a result of the failure at Seattle to launch a comprehensive round, going into Seattle, I think there was an international consensus that the next round of negotiations should last three years. Clearly, what's happened is that, although we're going to start negotiations on services and agriculture this year, it's unlikely that you can bring the agriculture or the service negotiations to a conclusion in the absence of more issues on the table, including industrial tariffs, intellectual property, anti-dumping, and all the other issues that were in play in Seattle.

Unfortunately, the aftermath of Seattle is that, although it's not going to stop us in the first year of the ag negotiations from doing what we would have done in any event—set up a committee, agree on a chairman, table initial negotiating proposals—at some point, probably some time in 2001, we're going to run up against a stone wall if there hasn't been agreement to launch a more comprehensive round by that time. To have a successful agricultural negotiation, we need more issues on the table than just agriculture and services.

What happens if others don't reduce subsidies? I think most participants, including the European Union, have acknowledged that the architecture that emerged from the Uruguay Round is basically something we need to build on. I don't see any disagreement about reducing trade-distorting subsidies. I think that's going to be on the agenda, and nobody is going to strongly argue against that.

There is going to be a lot of argument about green subsidies if there is an agreement to reduce trade-distorting subsidies. I think a lot of countries will argue that if greens are non-trade distorting by definition, there should be no discipline on the use of green subsidies. Other countries will be arguing the margin, or that all subsidies are going to have some impact on production decisions and investment.

The trouble with how we design domestic subsidy programs in Canada is that we have to design them so that we don't trigger U.S. countervail. We learned through a bitter experience on hogs that if you don't design a program that's free from countervail, the effect of the countervailing duty negates all of the government contributions and more. In other words, it affects the price of every hog sold in Canada, and not just the hogs that we sell into the United States.

• 1705

Clearly, when developing a subsidy program in agriculture, it's incumbent on any government to ensure to the maximum extent possible that the program is not going to be countervailable either under U.S. domestic law or under the WTO. With the so-called green programs, they're not countervailable if you meet the WTO criteria. Under U.S. countervail law, if a program is not specific to an individual industry, then it's not countervailable either. That's why we're preoccupied about the potential of countervail.

On the Europeans using export subsidies, while it's true they and the Americans have in effect been able to roll over their right to use export subsidies, as a practical matter the United States hasn't used any export subsidies on grains since the summer of 1996. I'm trying to be objective here, so I'll be very specific: in the case of wheat, the Europeans have been relatively responsible, but the same can't be said for barley and some other commodities.

Mr. Murray Calder: But with the carry forward clause, they are in the position to be dumping out approximately 37.8 million tonnes of wheat using that carry forward clause. On top of that, the carry forward clause will be finished by December 31 of this year.

Mr. Mike Gifford: I realize that, Mr. Calder, but I just don't see the Europeans being that irresponsible in the short term. Until now, they've been much more responsible than they have been in the past.

In terms of export contracts and supply management, basically the result of the appellate body ruling on Canada's dairy export pricing practices simply said that when it comes to exporting, if you're running a multiple pricing system, a two-price system in which your domestic price is higher than your export price, the more government involvement there is, the greater the chance that it will be deemed to be an export subsidy. Because both the federal government and the provincial governments delegate a lot of government power to provincial marketing boards, it was the delegation of government power to these producer marketing boards that in effect turned it into an export subsidy situation instead of it being a dumping situation.

It seems to me that the implication that arises from the appellate body's ruling is basically that if you want to have supply management in Canada for the domestic market, that's fine. If you want to export, you basically have to set up an export system that minimizes the extent of government involvement, whether it's direct involvement or whether it's indirect through the delegation of federal and provincial powers to marketing boards. That's the only implication. I don't think there are any implications for the domestic market, provided you can keep your export production separate from your domestic production.

Mr. Murray Calder: Okay. Thank you.

The Chair: Mr. Shepherd.

Ms. Christine Elwell: Could I just quickly respond, or are we out of time?

The Chair: Yes, go ahead.

Ms. Christine Elwell: With respect, I'd like to touch on what we would say are two myths about GE. For example, you say we have a hungry world and we need to feed it. I'm relying on a Women's Environmental Network document called “Feeding the World”, and it argues in favour of sustainable agriculture. For example, coffee farmers in Mexico have doubled their yields by using organic production methods.

I also have a quote from the Institute for Sustainable Development in Ethiopia:

...there are still hungry people in Ethiopia, but they are hungry because they have no money, no longer because there is no food to [feed them]. ...we strongly resent the abuse of our poverty as a way to sway the interests of the European public.

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This is a response to Monsanto and its European campaign called “Let the Harvest Begin”. It tried to make the Europeans feel selfish by refusing to accept GEs, because this was a luxury our hungry world could not afford.

I just wanted to flag to you, sir, that there's a great debate about the myth that we need GE foods to feed the world. Perhaps sustainable agriculture will get us there faster.

I'd like to touch on another myth that may be difficult for you, because I've heard it a couple of places. Jennifer mentioned it, Mike mentioned it, and I think it's in the standing committee's report on Canada and the WTO. It's the sense that in deciding these matters, politics doesn't matter, that it's strictly science that should call the shots.

I'd like to indicate that not only does the SPS agreement in the WTO allow for members to set standards that are acceptable to them and that may be higher than international standards, where they exist; we have the appellate body decision in the hormone case that specifically reversed the lower panel decision on this point and said the SPS agreement allows for both quantitative and qualitative assessment of the risks.

Finally, I'll just quote from a recent European paper that says:

Decision-makers need to be aware of the degree of uncertainty attached to the results of the evaluation of the available scientific information. Judging what is an “acceptable” level of risk for society is an eminently political responsibility.

So to divorce the politics from the decision-making process is to not see the game as it really is and the rules that allow for decision-makers to take political decisions.

The whole purpose of scientific evaluation and risk assessment is to determine if there's enough science to be concerned, and if there is, you need to evaluate the risk. Well, in evaluating that risk, you need to take into account what's acceptable to that society. And in the absence of scientific certainty, that is a political decision.

So I think we're just fooling ourselves by saying keep the politics out of this, because it's just right there.

The Chair: Mr. Calder, very quickly.

Mr. Murray Calder: Okay.

Christine, I mustn't have made myself as clear as I wanted to be. You're not going to keep the politics out of it. That's why we're here. The component missing in this debate right now is the education factor.

Right now 2.5% of the population is actively involved in growing the food. Of that, 0.5% is growing 80% of the food within this country. I understand the consumers' concern, because they want to know what they're eating. That's where the education component comes into it.

I feel the consumers have to be there at the table, as we make decisions as an industry, to understand what we're doing as an industry. Then we get away from the problems and the debate we're going through right now. If education were the big component within this, people would understand the direction agriculture is moving in, and I think by and large would agree with it too. Agriculture is moving in a number of different facets.

The Chair: Thank you, Mr. Calder.

Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): Thank you, Madam Chair.

Thank you to Mr. Gifford and to some of our agricultural producers.

This process with the European Union has been going on for a long time. Looking at it from another aspect of trade negotiation, what is in our toolbox that we can use on an ongoing basis? It would appear we've gone through the GATT and the WTO and we still have this lingering problem with the trade with our European partners.

I look at some of what I would say are trade-distorting practices that are going on, and I start thinking about why Canada isn't engaged. I know we have a small market, and I'm conscious of what you said about the Europeans not caring much about their export trade but being primarily concerned about their domestic products, but still they have to sell them somewhere. I look, for instance, at the wine industry and I wonder why we don't question whether in fact there are genetically modified grapes or something that would....

In other words, why don't we do the same thing the Europeans are doing to us—restrict their products coming into, if not the Canadian, then the North American market? Would that have some impact in the negotiating process? I know the Americans have been sort of beating them up over the banana war business. Maybe we need to do more of these kinds of things.

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Mr. Mike Gifford: Even the United States, the only remaining world economic superpower, basically hasn't exactly had an awful lot of success in beating the Europeans over the head and forcing them to take decisions they don't want to take. I think where the Europeans and ourselves and the Americans share a common point, though, is in our respective willingness to accept that the rule of law should apply to agricultural trade just like it applies to non-agricultural trade.

The great breakthrough in the Uruguay Round was getting rid of all these country-specific exceptions and having rules that apply to agriculture common to all and then having an enforceable dispute settlement mechanism. In the old days under the GATT, if you didn't like a panel report, you just ignored it and basically refused to have it adopted by the GATT. These days, under the WTO, a participant to a dispute cannot block the adoption of a panel report.

Now a country does have the choice. If you bring a successful case against a country, such as beef hormones, for example.... The appellate body found that the European Union was inconsistent in its application of restrictions on hormone beef.

The Europeans had two choices: they could either bring the measure into conformity with the appellate body findings or they could face authorized retaliation. Basically they're now facing retaliation, and I think they, the Americans, and ourselves all hope the next step can be to move to some kind of a compensation scenario and ultimately to a scenario where North American beef can be sold. If the European consumer doesn't want to buy it, fine, but at least have the consumer making the decision as opposed to basically government action.

Moving outside the law puts a medium-sized or small country very much at a disadvantage. To their credit, even our American friends, in our bilateral trade problems with the United States, have respected the WTO and the NAFTA. In the absence of the WTO and the NAFTA, we'd have import restrictions on Canadian wheat, on our exports going to the United States today. It's because of those international rights and obligations that we survive. I think it would be a long, slippery slope for us, a country that many countries around the world look up to as an upholder of the rule of law when it comes to international trade, to start playing games that in the long run are going to cause more problems than they solve.

The reason the Europeans have relatively good access to our market and we have relatively poor access to theirs is that although the GATT was relatively poor and ineffectual in dealing with agricultural trade, it didn't stop Canada and the United States, from 1948 until the Tokyo Round, from progressively reducing tariffs on bilateral trade. Because we reduced our bilateral tariffs, we had to reduce it to the rest of the world.

As the Europeans changed from a net importer to a net exporter, they basically rode in on the coattails of the American negotiators. That is the effect of a multilateral negotiation; you might do the actual negotiation on a bilateral basis, but the benefits are extended multilaterally.

I think the potential for taking illegal action.... You're just going to get slapped very hard by somebody taking you to court and it's not going to have much of an effect on the country you're trying to influence. Admittedly this is in the medium term, but we have a much better possibility of moving the Europeans in a direction that's more compatible with our interests by having the collective weight of the developing countries, the medium-sized agricultural exporting countries—like Canada, New Zealand, and Australia—and the United States working together with the Europeans in a growing recognition within Europe that they have to change their agricultural policies. We have a much better chance of working that way than we have of taking illegal actions outside of our rights.

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Mr. Alex Shepherd: I wasn't specifically talking about illegal actions. I was talking about the identical actions that possibly the Europeans are taking towards some of our own products.

For instance, in the wine industry there is such a distortion in trade between the two countries. I know we have a small market so we probably don't have any clout anyway, but hypothetically why don't we take the same analysis approach of their imports into our market?

I guess the problem that's frustrating to a lot of producers is that when we go through this process, they are getting to our market and we're not getting access to theirs. How do we slow down that process?

I heard what you said about illegal activity and I'm assuming that therefore you believe the Europeans' imposition of some of these hypothetical restrictions is in fact illegal. While this illegality goes on, we're still losing millions and millions of export dollars.

Mr. Mike Gifford: In the case of wine, we are addressing that issue very explicitly. There are negotiations currently underway. Both Commissioner Fischler and Minister Vanclief have agreed to try to resolve our wine trade problems within a six-month timeframe. Bilateral negotiations are currently underway, and hopefully we can resolve this issue.

The WTO doesn't prevent a country from enacting regulations or having technical measures. What it does prevent, though, is people abusing the right to establish regulations, which on the surface are perfectly appropriate, and to start using them as a disguise barrier to trade. I can say that in the case of wine, I think we're heading in the right direction on that one.

The Chair: Mr. Rice, you had a comment.

Mr. Martin Rice: I don't think we would get a lot of satisfaction by putting up the same kind of import restrictions in Canada that the Europeans have. Under international trade rules, we couldn't do it just for them. We would have to make it for all countries, and we would give up an enormous amount by backing away from all of these commitments we've made. I think the payment we'd have to make to get out of those commitments, to liberate our market, would be just too costly.

Our biggest issue isn't so much what Europe is doing in our markets; it's what it's doing to our markets elsewhere. It's getting them out of messing up these other markets.

Is it not right, Mike, that when the common agricultural policy was created, there was actually support and sympathy for it from North America and so on in that it was going to address a historic fear of having food shortages? It was not really foreseen that it was going to result in all this overproduction and that somehow somebody wouldn't put the brakes on this overproduction. It's incredible really how the amount of overproduction they allowed got completely out of their hands. It's not their ability to feed themselves; it's just all this extra food they produced that has been the problem.

The Chair: Thank you, Mr. Shepherd. I just have a quick question.

Mr. Rice, you said during your presentation that what we had to ensure with the non-European Union countries was that we at least keep what we have with them now. At the same time you're saying some of these wannabe EU members are in the position of divesting themselves of these agreements. If they're divesting themselves, how can we make agreements with them to ensure...? Did I misunderstand?

Mr. Martin Rice: You're getting out of any tariff agreements. As I understand it, when they're a member of EU, they will not be able to maintain any free trade agreements. That means no tariff—zero tariff commitments that are unique to them and some other third country. They will have to be operating only within EU agreements.

They're so confident they're going to get into the EU that they're actually willing to.... I don't know how extensive these agreements are, but they seem to be committed to getting out of any zero tariff or other tariff undertakings they have with other countries so they can join the common market.

• 1725

We mentioned two things. We can continue to address non-tariff issues with those countries. I think Mike actually make reference to that. So there's nothing stopping us from dealing with non-tariff issues, clearing more of those away, and kind of maximizing the friendliness of our trade relations with those countries before they enter the EU.

Also, I guess we should not take it for granted—not yet anyway—that they will find mutually satisfactory arrangements with the EU to join the EU. I think it will require a fair bit of adjustment from both sides. It's still going to require political—

The Chair: I have just a quick question on the multi-functionality. I sat on the committee that travelled across Canada on the WTO consultations, and that was not a word that came up during our discussions across Canada. Is it something new? I guess I still don't know what it is.

Ms. Christine Elwell: It's also called non-trade concerns. It was in the draft that wasn't accepted at Seattle, in paragraph 29, called “Non-Trade Concerns”. That's where they make the list: agriculture, rural communities, food safety, and health. That is what multi-functionality refers to.

The Chair: Ms. Higginson.

Ms. Jennifer Higginson: On what we see, in terms of multi-functionality, when I was in Seattle we discussed this with Japanese and European farm organizations, and they actually held presentations on it. Their point was to look at the different roles of agriculture, in terms of rural development and the support the agriculture community gives to world communities, in terms of the pleasing landscapes tourists enjoy when they move into the country, the environmental benefits of agriculture, and other functions for the communities, such as grassing the slopes of waterways. There's a whole list.

When the Japanese talk about multi-functional agriculture, they talk about grassing slopes where they have a lot of mountains and having agricultural production on land where there might be problems with soil erosion—stuff like that. From our point of view, all those functions of agriculture are very important, but we already see subsidy levels and domestic support levels in the European Union now. The producers are looking for additional funding and additional money to be paid to them from the government for the continuation of these other roles agriculture undertakes.

We certainly see agriculture performing other roles, but if European producers start getting subsidized and paid for all of these other benefits they provide to the communities, it's going to be even more difficult for our producers to compete on an international scale.

The Chair: Mr. Gifford.

Mr. Mike Gifford: I guess some of us believe that multi-functionality is a bit of a false issue. They can be called non-trade concerns, but basically it's a rationale for ministers of agriculture to provide support to the rural sectors. The bottom line is that provided support is provided in non-trade distorting ways, how much you provide in the way of support to your rural sector is basically a national decision.

The international community has something to say if the way support that is given is trade-distorting. One of the big positive developments in Seattle was Commissioner Fischler's acceptance of the point that if governments in Europe are going to provide support to their rural sectors for non-traditional agricultural production reasons, that support must be provided in non-trade distorting ways and not be used as an excuse for maintaining import barriers and export subsidies.

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Some people think if you say multi-functionality often enough and long enough, it will somehow provide a magic shield against trade liberalization.

The Chair: Thank you all very much. We're out of time. Thank you, colleagues, for coming. Thank you witnesses.

The meeting is adjourned.