STANDING COMMITTEE ON
AGRICULTURE AND AGRI-FOOD
COMITÉ PERMANENT DE
L'AGRICULTURE ET DE
[Recorded by Electronic Apparatus]
Tuesday, February 17, 1998
The Chairman (Mr. Joe McGuire (Egmont, Lib.)): Good
morning, everyone. I'll call the meeting to order.
As you see on number 4 of the agenda we have a motion by Mr.
Jay Hill. Do we want to deal with that motion
at a later time today ?
Mr. Leon E. Benoit (Lakeland, Ref.): He prefers to
postpone it until the next meeting.
The Chairman: Is it agreed that the motion be
postponed until the next meeting?
Some hon. members: Agreed.
The Chairman: Today, pursuant to Standing Order 108(2),
we will consider the United States' challenge on dairy
export pricing policy.
Our witnesses today are from the
Department of Agriculture and Agri-Food. We have Mike Gifford
and Paul Martin who are both with us again.
You're going to be two very familiar faces, I
understand, in this next year or so.
We'll take the statements from the witnesses and then
we'll go to questions.
Mr. Mike Gifford (Acting Assistant Deputy Minister,
Market and Industry Services Branch, Department of
Agriculture and Agri-Food): I should start by saying that
we've been joined by our colleagues from the Department
of Foreign Affairs and International Trade. In particular,
we have with us today Mr. John McNab, who is
the director of the trade remedies
division in the Department of Foreign Affairs and
Basically, on this exercise, we have a Team Canada
approach with the Departments of Agriculture and
Foreign Affairs and International Trade. We are
working very closely together with the
provinces and the industry, both the Dairy Farmers of
Canada and the National Dairy Council of Canada.
I thought, Mr. Chairman, what I would try to do very
quickly is just give you the background in
context to what led up to this dispute.
The Chairman: You have John McNab and...?
Mr. Mike Gifford: Mr. Ian McLeod is the
lawyer at the Department of Foreign Affairs and
International Trade, Mr. Chairman, who is in fact advising
the group that's working on this particular panel.
I will give you some
background, Mr. Chairman, in terms of what led up to
this panel. I will then turn to Mr. McNab
just to bring you up to date on exactly what the
process is in Geneva and when we can expect basically a
panel report and then probably an appellant body determination.
First of all, I'd just like to remind the committee that
unlike the industrial sector that agreed to prohibit
the use of export subsidies back in the 1950s,
agricultural export subsidies are still permitted in
the GATT. The big difference was that in the Uruguay
Round, which concluded in December 1993, for the very
first time agricultural export subsidies were brought
under effective discipline.
We basically defined more precisely what constituted
an agricultural export subsidy. It was then agreed
that we would reduce those defined subsidies by certain
amounts over a six-year phase-in period. Although it
would still leave a level of export subsidization, it
certainly represented the first time that the
international community had attempted to reduce the use
of agricultural export subsidies.
During a discussion of the definition of
what constituted an export subsidy, Mr. Chairman,
there was no discussion about what to do with two-price
systems. This is the situation where in many
countries, many industries will basically
price up to the duty-paid import price to establish a
domestic price level and then they will export at various
prices into various markets, depending on end uses.
I can state categorically that during the negotiations
of the revised list of export subsidies there was no
real discussion of what to do with so-called two-price systems.
There was, however, a provision that in effect said that
the subsidy reduction commitments should not be
circumvented. This idea was not really
discussed to any great extent, but certainly there was
an open-ended commitment that somehow countries
should not circumvent their very specific export
subsidy commitment reductions.
I just might add that both in the case of dairy and
in the case of sugar, both Canada and Europe had export
practices in the old days that were defined as
export subsidies for the purposes of this agreement.
In the case of European sugar and Canadian dairy
the two systems were very much the same.
In the case of dairy, Canadian dairy producers were
assessed a levy by their provincial milk marketing
That levy was then paid to the Canadian Dairy Commission.
The Canadian Dairy Commission officials then
used to write a cheque to a Canadian dairy exporter
to allow him to export to international markets
at prices that were lower than those prices
prevailing in Canada.
It was this idea of producers paying a levy, in effect,
to a governmental or quasi-governmental agency such as
the Canadian Dairy Commission, who in turn wrote
specific cheques to firms engaged in exports, that was
defined, for the purposes of the WTO, as an export subsidy.
One of the things that occurred after the conclusion
of the Uruguay Round was the decision by the Canadian
dairy industry on what to do with these new disciplines.
For a number of reasons, some of which
related to their own initiative to reform
domestic policies—that is, to establish genuine
pooling across the country, and to basically
split the country into a western pool
and an eastern pool—the dairy industry
collectively decided that rather
than continue the old system, which it was entitled
to do so long as it was within the export commitments
put into Canada's export schedule, they would change the
system to what's been called “classified pricing”.
That is to say, Canadian provincial milk
marketing boards would sell milk to processors
at various prices, depending on the end use and the market.
The long and the short of all of this, Mr. Chairman,
is that the United States, first of all, and
New Zealand secondly, have basically claimed
that the system Canada introduced as of August 1, 1995,
the so-called system of export pricing,
which replaced the old producer-financed
export assistance program, is an export subsidy
and is in effect circumventing Canada's
export subsidy reduction commitments.
I might add in parentheses, Mr. Chairman, that
in talking to U.S. dairy producer representatives,
they've made it very clear that their objective
is basically to get the United States government
to once and for all clarify what exactly
are a country's rights with respect to use
of export subsidies and two-price systems.
If the United States wins this WTO panel case,
that's fine, but if Canada wins the panel case,
that's equally fine, because then United States
producers will simply ask the U.S. government
to introduce a system similar to Canada's.
In the case of New Zealand, the New Zealand concern
about the Canadian dairy export pricing system
doesn't really relate to Canada's significance
as a dairy exporter, because we are a very small dairy
exporter relative to Europe, relative to New Zealand,
Australia and even the United States. But New Zealand's
concern is very much a concern that if Canada's system
of export pricing is found to be in conformity
with our export subsidy reduction commitments,
then there are some people in Europe, in particular
France and Denmark, who've been actively lobbying Brussels
to adopt a pricing system very similar to that of
Canada's. So New Zealand's concern is that the
European Union, which is the world's largest dairy exporter,
would in fact move to adopt the Canadian system.
The French and the Danish proposals that Brussels
adopt that kind of system has so far been turned down
by the European Commission and some of the other member
states. New Zealand's concern is that they want to
basically clarify again, once and for all, what exactly
are a country's export rights and obligations
when it comes to agricultural export subsidies.
I might conclude, Mr. Chairman, by saying “once and
for all” is not something we should say categorically,
because it seems to me as a practical matter that
irrespective of the outcome of this panel—which we
expect to come down before the end of the
year—countries will want to discuss in the next round
of agricultural negotiations what kind of new
disciplines, if any, should apply to two-price systems.
New Zealand, for example, does sell milk for fluid use
in New Zealand at a higher price than it sells for
export. But it has been arguing, for example, that it's
selling 90% of what it produces at the world price, and
only 10% at the New Zealand price, and moreover the New
Zealand price isn't really supported by very high
Other countries try to make the argument that
basically there is some kind of qualitative difference
if a country relies 90% on the domestic market that's
protected by high tariffs, and basically only exports
The bottom line on all of this, Mr. Chairman, is that
it's going to require a panel and probably an appellate
body after that—basically an appeal to the court of
appeal of the WTO—to determine, at least between now
and the introduction of any new rules that might be
introduced as a result of the next round of
negotiations, or clarify exactly what countries
can do and can't do with respect to agricultural export
If you don't mind, Mr. Chairman, perhaps before
turning the floor back to you for questioning, I might
ask Mr. McNab to give you a snapshot of what
exactly is the process in Geneva and when we can expect
some of these key decision points.
The Chairman: Okay. Mr. McNab.
Mr. John McNab (Director, Trade Remedies Division,
Department of Foreign Affairs and International Trade):
Thank you very much, Mr. Chairman.
As you may know, the dispute settlement process under
the WTO is much more structured than it was under the
GATT. There are certain timeframes that have to be
honoured, and once the process is initiated, there are
certain time lines that you can predict, not with
certainty but certainly with some approximation.
The case involving the United States really began
domestically in the United States under section 301,
which is a domestic provision in the U.S. that allows
an industry group to petition USTR—to bring to the
attention of USTR a practice of a trading partner that
they think may be in violation of an international
agreement. If USTR agrees that there is a basis to
proceed, then they must initiate the dispute settlement
procedures of the agreement under which the allegation
is made. So in that case, that meant initiating the
dispute settlement procedures of the WTO.
The first step in any WTO dispute is a request for
consultations, which was made in October. The
consultations with the United States were held in
November in Geneva. Japan and Australia participated
in those consultations as well. Following the
consultations, if there is no resolution to the
dispute, after a period of 60 days the country
requesting the consultations is able then to request
the establishment of a panel.
The United States did request the establishment of a
panel last week at a meeting of a body called the
Dispute Settlement Body. Under the procedures of
the Dispute Settlement Body the first request for a
panel can be turned down by the other countries. In
this case, Canada did not agree at the first request
for the establishment of a panel.
The United States is free to request the establishment
of a panel at the next meeting of the
Dispute Settlement Body, which we think will be in early
March. Under the rules of the WTO, at the time the
second request is made it must be accepted. A panel
will be established if the U.S. does make the second
Also, the interest of New Zealand has been indicated
in a request for consultations they made at the
very end of December. Consultations were held with
New Zealand in Geneva at the end of January. So New
Zealand will soon be in a position as well, after the
end of February, to request a panel. The
request could be made simultaneously with the second
request by the United States, but we'll have to wait
If the U.S. does proceed with the second request for a
panel and it's established on March 13, then that
does initiate the process under the dispute settlement
understanding. This would lead to the submission of
arguments by both sides in early May and at the end of
May. There would be a first hearing at which both parties
would be given an opportunity to appear before the panel
probably around mid-June. An interim report of
the panel would be sent back to the parties around mid-August
and we would expect a final report of the panel around
As Mr. Gifford said, one of the
major differences between the GATT and the WTO dispute
settlement process is that there is now an appeals
procedure in the WTO. There is an appellate body so
that if a party to a panel disagrees with the
panel's finding or with the reasoning of the panel, it can
request an appellate review. The appellate body works
very quickly. If there is an appeal of a decision
that comes out in October, it would have to be
finished in January or early February of next year.
So if the whole process is initiated by the United
States early next month, it would end in January or early
February of next year.
Thank you, Mr. Chairman.
The Chairman: What is the big difference, then, Mr.
Gifford, between our old way of doing this
and our new way?
Mr. Mike Gifford: Under the GATT,
particularly when it came to agriculture export
subsidies, over the last four or five years of the GATT
there was a consistent tendency of all major
participants to block the adoption of panel reports.
So, in effect, you could get a panel ruling on something,
but then one of the complainants to the panel would
block its adoption and therefore the rule would not
come into effect.
The difference under the WTO dispute settlement is
that a party to a dispute cannot block the adoption of
a panel report. Some people were
concerned that if the panel reports were going to be
adopted without opposition, there would have to be a double
check, a safety check. There would have to be a provision for an
appeal of a panel report.
That's why one of the new
things under the WTO is this appellate body, which is
comprised exclusively of lawyers, and largely of
ex-judges. So it's a very high-calibre body.
Although I stand to be corrected here, John, I don't believe any
panel report to date has been overturned by any
appellate body finding. There have been instances
where some of the specifics of a panel finding have
been modified by the appellate body.
Mr. John McNab: Every panel report has
been appealed so far.
The Chairman: Mr. Benoit.
Mr. Leon Benoit: Thank you, Mr. Chairman.
Good morning, gentlemen. Welcome.
First, Mr. McNab, on your comment that the U.S. may
choose to ask for a panel, do you feel they may
not in fact...or are you just leaving it open
because there's always some uncertainty?
Mr. John McNab: You can't predict the actions of
others with certainty. Given that the United States
did not request a panel immediately when they had the
right to—they did delay a bit and then chose to
request a panel at the last meeting—they may well
request a panel at the next meeting.
Mr. Leon Benoit: Could I ask you to make
up a brief sheet laying out the process with the
different steps as you've just outlined it to us,
perhaps with just a little more detail on what you might expect at
each stage. I think that would be helpful.
Mr. John McNab: Thanks.
Mr. Leon Benoit: Mr. Gifford, you made a comment
on the U.S. and on Europe, saying that if the U.S.
loses in this process, in the challenge against the
Canadian pricing system that they may in fact go to
the Canadian-style pricing system. You said the same thing
about Europe; they may well go to the
Canadian-style pricing system. Why do you think they
would do that?
Mr. Mike Gifford: Today, Mr. Chairman, the
United States does have a major dairy export subsidy
program. They have direct government export subsidies.
So they still have that right to use export subsidies
up to the defined limits. Some U.S. producer
groups have been arguing that it would make sense to
adopt a system similar to Canada. They have, in
effect, classified pricing to some extent in the United States.
For example, the price that they sell milk for on the
retail market for fluid use is different from the price that they
sell it for for various manufactured uses, such as butter
or cheese. So they have a system of classified pricing.
Mr. Leon Benoit: Would they do this because it
would make them able to compete better in certain
markets, or would they do it because they're less likely
to be challenged on it?
Mr. Mike Gifford: Particularly in the last four
or five years they
believe the future of the U.S. dairy industry is
basically on a global basis. They feel very close to being able to
produce milk at a globally competitive price. That
being said, they want the opportunity to have
maximum flexibility. They think that having a
system somewhat like Canada's would give them more flexibility.
You'd have to ask the U.S. dairy
producers. I'm just reporting the comments they've
made to me several times in the past, that if the United
States loses this case, then they will ask the United
States government to adopt a system similar to Canada's.
Mr. Leon Benoit: In the case of Europe, is it a
much similar kind of thinking?
Mr. Mike Gifford: The European Commission in Brussels has a
domestic policy view that they want to
make changes to European dairy policy, but they don't
necessarily see eye to eye with the French and the
Danish governments. The French and the Danish
governments are on public record as suggesting that
Europe should adopt a system very similar to Canada's.
For their own domestic policy reasons, the
European Commission and some of the other
member states are saying they would prefer to reform European dairy
policy in a somewhat different fashion.
Mr. Leon Benoit: You mentioned that sugar has a
very similar system in Europe to dairy products in
Canada. What would likely happen with sugar? Would it
have an impact on the way Europeans handle their sugar marketing?
Mr. Mike Gifford: Perhaps I can simplify it.
The system that was defined as
an export subsidy for sugar in Europe, Mr. Chairman, is
a system that basically says a
certain percentage is sold on the domestic market, a
certain quantity is sold on the domestic market at
European prices. A product that's sold for export
is sold at world prices. So basically it's a two-price
system to simplify it down to its bare essentials.
The way they operated the system though did provide for the
use of direct financial payments by the European
Commission and the member states to European sugar
exporters. Therefore, it was defined as an export
subsidy, just as the Canadian dairy system prior to
August 1, 1995, was a defined export subsidy. We
collected these levies; we gave them to the Canadian Dairy
Commission. They wrote a cheque and gave it to a
Canadian dairy exporter.
Mr. Leon Benoit: Could you see this having an
impact on any other agricultural commodities either in
the United States or Europe?
Mr. Mike Gifford: No, I don't think so, Mr.
Chairman. I think there's a growing sense of
inevitability that in the next round of negotiations
there's a distinct likelihood that agricultural export
subsidies will be banned after a phase-out period, just
like industrial export subsidies were banned in the
1950s. This will precipitate a detailed discussion
that if we are going to finally ban agricultural export
subsidies, what kind of international disciplines are
appropriate for those countries—this will cover
virtually all countries—that in effect practise some
kind of two-price system? It doesn't matter whether
you have a 10% or 200% tariff at the border, it always
pays you to price up to the duty-paid price on the
domestic sales and then sell into export markets at
whatever the prevailing export price will be.
In legal terms, that's considered to be dumping
under the WTO, but often importing countries don't
really care whether the product is dumped because they
just want to get it at the lowest possible
price. But then the question is about the
concerns of other affected exporters in third markets
when one country is using a two-price system. I think
this is a genuine concern, Mr. Chairman, that will
have to be addressed in the next round.
Mr. Leon Benoit: Their concern isn't just the
concern to Americans. The restaurant industry,
especially the pizza retailers, have faced some very
serious problems due to the two-price system. They're
almost unable to compete with the supermarkets, which
have a frozen pizza that's very close in quality to
what a pizzeria can produce. The pizza industry in
Canada has shrunk dramatically over the last several
years, and they argue that it is because of this
So the concerns aren't just
expressed by the Americans. It's also by Canadians who
feel the negative impact of the two-price system,
especially when they don't have it available while
Mr. Mike Gifford: All I can say is that there are
many instances in the United States itself of these
kinds of systems. For example, the U.S. sugar system
has a domestic price of roughly 21¢ U.S. a pound for
sugar, but they export to offshore markets or to other
markets at prices substantially below that. There are
other instances, other products, in the United States
where they sell various products to different end users
at different prices. This is a typical business
practice. It's not unique to agriculture.
The Chairman: Mr. Chrétien.
Mr. Jean-Guy Chrétien (Frontenac—Mégantic, BQ): Mr. Gifford,
your colleague told us earlier that, according to the time lines,
we might get the final report on the American challenge around the
month of January of next year. However, the next WTO negotiations
should start in the fall of 1999. In your opinion, why are the
Americans not waiting for the next round to start before putting on
the table all those little irritants they have found yearly since
the 1993 negotiations? After all, that next round is due to start
Mr. Mike Gifford: Mr. Chairman, all we can do is
speculate. I assume the United States government
would prefer to get an authoritative interpretation
from a panel and the appellate party as to what the
existing rules mean, in order to determine whether they
should press for any changes in the next round.
Recognizing that for the next round, although it will
start in late 1999, there is no idea as to when it will
conclude and even less idea as to when the new
provisions of the new agreement would come into
force.... For the sake of argument, if January 1, 2005
is when the next round results start to be implemented,
you still have a period between now and 2005 under the
Mr. Jean-Guy Chrétien: What are the chances of Canada winning
that second round of negotiations, in your opinion?
Mr. Mike Gifford: Mr. Chairman, our American
friends made a major error the last time around when
American government officials told their domestic
constituency that it was going to be a slam dunk with
respect to the NAFTA panel—in other words, that the
panel was going to vote 5-0 in favour of the United
States. In fact, the panel voted 5-0 in favour of
When somebody asked me the same question a couple of
years ago, Mr. Chairman, I said we were out to win this
panel, but it would be a very foolish person who would
try to anticipate the results of a panel. We are
working very closely with the Dairy Farmers of Canada,
the National Dairy Council of Canada, the Canadian Dairy
Commission and the provinces. The provinces are
providing their legal counsel advice to us, and so is
the private sector. We're going to present as good and
as tough a case as we did the last time around, Mr.
Mr. Jean-Guy Chrétien: You are optimistic. If I am not
mistaken, in the 1993 negotiations, we set very high tariffs on
eggs, poultry and dairy products in order to keep our supply
management system. If those customs tariffs are applied, it will
discourage all exporters and importers in Canada.
Our milk producers are presently producing big amounts of
milk, within their quotas of course. If you have a surplus on the
Canadian market even though you are still within quotas, you will
be selling it at a lower price; that is, you will sell it at 50¢
in Canada, for example, and export it at 25¢ a litre. The farm
producer or the milk producer will agree to getting half the
I would like to know what percentage of our manufacturing milk
production is being exported at a lower price.
Mr. Mike Gifford: Mr. Chairman, my
recollection—and we will provide you with specific
data—is that domestic sales, both fluid and product
going into manufacturing, would account for over 95% of
our production, so exports today represent less
than 5% of our total production. However, I think
the important thing that the industry itself
is beginning to struggle with is that the domestic
market is a very slowly growing market. In fact, it
could be stagnant or declining.
Mr. Jean-Guy Chrétien: Those 5%, Mr. Gifford, could easily be
compensated by reducing our butter oil imports that now represent
Twice you said that if Canada were to win, the U.S. milk
producers would ask the U.S. government to emulate Canada. Some of
my friends are milk producers along the U.S.-Québec border, mostly
in Vermont, and they find that quite odd. Maybe they are not
typical of the American farming community, but if they are, let me
tell you that the Americans are not really keen on introducing a
management supply system similar to Canada's.
Mr. Mike Gifford: Mr. Chairman, I am not
suggesting the Americans are saying they would want a
supply management system like Canada's. I am saying
they would like an export pricing system like Canada's,
if in fact Canada won the panel. It's the export
pricing system they are interested in copying, not the
supply management system, Mr. Chairman.
Mr. Jean-Guy Chrétien: To conclude, I will make this comment.
Our milk producers who are selling 5% of their product in the U.S.
at half price do it because they don't want to throw it down the
drain, but they are not getting any government subsidy. I think
that if the Americans were willing to sell their milk at a cheaper
price—and I doubt they would ever do it—, they would ask their
government for compensation.
Mr. Mike Gifford: I think producers in Canada and
the United States both realize that you can't expect to
sell your milk to all markets at the identical price.
Even in the U.S. you sell fluid milk at a substantially
higher price than you would milk for, say, fresh cream
or cottage cheese. Milk going into cottage cheese would
be sold at a much higher price than milk going into
butter or cheese. It's quite common in the dairy sector
around the world for milk to be sold at different
prices for different end uses within a country, and
then to be sold for different prices, different markets
for different end uses when they export. This is
something that's not unique to Canada, Mr. Chairman.
The Chairman: Thank you.
Mr. Murray Calder
(Dufferin—Peel—Wellington—Grey, Lib.): Thank you,
I would like to carry on where Mr. Chrétien has been
going, and perhaps back up a bit. When we went through
the last Uruguay Round, Canada was working on supply
management with article 11. The United States suggested
we go to tariffication, which we did. Europe right now
is still working on a subsidy system that quite frankly
they're worried about, so they're looking towards the
tariffication system more than what they're into at the
The bottom line is that as a farmer I have to address
that balance sheet. If my expenses are higher than my
income, I'm not in business for very long.
I think what we're hearing out of Europe right now is
that they are worried about their subsidies going lower
than they are right now; they are probably looking at
moving more towards the tariffication aspect of the
two-price system. There's a groundswell in the United
States with their agricultural people. You have the
eastern dairy compact. There are a number of examples
of supply management that are starting to sprout up in
the United States, and I think it all stems from this
balance sheet aspect of it.
Is that why we're hearing the United States and Europe
talking more about a two-price system than we've ever
heard before, or am I a little off-track here?
Mr. Mike Gifford: There's no uniform position in
Europe or in the United States, for that matter. I
think there's a majority view in Europe that supply
management production controls, a system very similar
to Canada's, is something they're going to have. In
fact, Commissioner Fischler has suggested that he's
prepared to guarantee that system continuing to at
least 2006. But they're the world's largest dairy
exporter and if they're going to export—it's not a
question of surplus production, they're the world's
largest dairy exporter—they're going to be constrained
by these export subsidy disciplines. At some point
they know that export subsidies are going to be banned.
So the question is what kind of a system is
going to replace the current system, which is predicated
on the one hand at the production level with production
controls, and on the other hand with export subsidies?
If Europe wants to continue to be the world's largest
dairy exporter, somehow they're going to have to come up
with a domestic and trade policy for dairy that's
consistent with a new world, and I think that's what
they're struggling to do.
Similarly, in the United States they went from a very
inward-looking dairy sector that was very sensitive to
imports 10 years ago, to a sector today where in
California and the southwest the dairy farms are
extremely large and they believe they can compete on a
worldwide basis. You have producers in New England,
Vermont and New York, for example, who are concerned
that under that kind of scenario they are high-cost
producers and won't be able to survive. So even within
the United States dairy sector there are conflicting
views as to where the U.S. dairy sector should go in
Mr. Chairman, we're all trying to deal with the
recognition that in the future import barriers are
going to be reduced.
In the next round there's a distinct
possibility that there could be that big leap
forward to the decision to finally phase out
In that kind of world environment, how do you position
yourself for the next century? I think dairy producers
in Canada, the U.S., and Europe are all struggling to
figure out how to do it.
Mr. Murray Calder: Okay.
I'll go right back to the point you
made about the export subsidies.
Obviously an export
subsidy is in place to protect the
domestic industry. Say it's overproducing and you
have to get rid of surplus product. If you put it on the
world market and produce it below the cost of
production, there needs to be a subsidy or there would
be no sense in producing it, because you would be
Obviously a government
wants to protect its domestic industry. We want to
protect dairy here in Canada, the United States wants
to protect dairy in that country, and so on and so
forth. It would make sense to me that after a while
these countries are going to be looking at it this way:
if there is no more export subsidy, why the heck would you want
to produce a product on which you're losing money to
Mr. Mike Gifford: Within it, Mr. Chairman, I guess
is one of the challenges. You can look at a balance
sheet from the perspective of a per unit and say
that the average cost of production on a per unit basis
is this and I should get this to cover my cost, or you
can look at a balance sheet from the overall point of view
of your total income and your total expenses.
It's fair to say that even dairy
producers in Canada have recognized that it's
impossible to sell a litre of milk at the same price
for all markets even within Canada. The price
for fluid is one price, for ice cream it's
another, and for cheddar cheese it's another, so there is
At the end of the day, Mr. Chairman, it's up
to each producer to make an assessment as to
whether or not, in terms of his overall revenue and
expenses, he should contract, stay the same, or expand
his operation. It's basically an individual
decision on how he can compete relative to
his other colleagues in the sector.
Mr. Murray Calder: I totally agree with what
you're saying. I know when you lump all
those different prices for
those different products, you've
satisfied the cost of production formula or you're not
in business. In other words, you're producing a
product on which you're making a profit.
I want to move toward the New Zealand example. We
have two dairy industries that are relatively similar.
The dairy industry here in Canada has a
high capital component, which is the quota, and
the dairy industry in New Zealand
has a high capital component, which is the land.
Land is very expensive over there. You therefore have two
industries whose start-up costs are relatively similar.
However, we basically have planned
production over here, so we don't export a lot
and New Zealand doesn't either.
I'm not aware of any major sugar industry in
New Zealand, and I'm heading toward the
butter oil and sugar blend right now. I'm not aware of any
sugar industry in New Zealand. They do have a
surplus of butterfat, though, because they have no
planned production over there.
Now you have an industry that has to—
The Chairman: Mr. Calder.
Mr. Murray Calder: I'll go very quickly; this is my last
You have an industry that is now importing sugar into
New Zealand to mix with their surplus butterfat so they
can fly it to Canada. Working
on the premise I'm working with right now, is that not
Mr. Mike Gifford: Mr. Chairman, New Zealand is a
long way from everywhere, but it's closer to Australia
than it is to most other countries and it can get
access to world-price sugar from Australia. So it is
possible to access sugar at world prices, and certainly
New Zealand butter prices would be at world level.
I stand to be corrected by
my colleagues, but I think it's fair to say that New
Zealand milk that is sold for retail fluid
consumption is sold at a higher price than
New Zealand milk that goes into butter manufacture.
Whether it's for domestic or export use, it's still
not clear to what extent there is in effect
differential pricing in
their domestic price for butter and their export price.
For example, we have a
relatively small quota of under 2,000 tonnes for butter
for all sources; New Zealand has been given a country
reserve. When they've got limited access into a market
such as the United States and Canada, the
New Zealand dairy board, as a single-desk seller, will
try to raise the price to get the maximum economic advantage
from that limited access.
Mr. Chairman, it's not clear where the New Zealand
dairy board is pricing the butter content of the sugar-butter
The Chairman: We'll go to Mr. Proctor.
Mr. Dick Proctor (Palliser, NDP): Thanks very
much, Mr. Chair.
Mr. McNab, you indicated in your
presentation that Canada did not agree with section 301
the first time it came up. Could you
elaborate a bit more on the reasons for our disagreement?
Why did we disagree?
Mr. John McNab: It wasn't with the section
Mr. Dick Proctor: A dispute settlement.
Mr. John McNab: That's right. The section 301
process is a domestic U.S. process by which the U.S. industry can
petition the U.S. trade representatives to take action.
The action they then take is to initiate the
dispute settlement in Geneva under the WTO.
I don't know if there are many cases in which the
potential defendant doesn't disagree the first time
around just to gain more time, perhaps to gain more
information, to hear their statement.
The rules allow it, and I think almost invariably
everyone takes advantage of that.
New Zealand also requested consultations, but later.
The consultations with the United States were in
November and with New Zealand they were in January. Both
countries will be in a position to request a panel, and
to allow the two systems to come together in
time is also one of the results of this.
Mr. Dick Proctor: Okay, but
did we have specific objections or did we just say
Mr. John McNab: We just said we objected.
Mr. Dick Proctor: We don't have specific—
Mr. John McNab: No. You don't have to elaborate
on why you're objecting.
Mr. Dick Proctor: Mr. Gifford, can you tell us a
little bit about the subsidies you see in
the U.S. dairy industry now? Do you have specifics?
Mr. Mike Gifford: Yes, Mr. Chairman. They have a
dairy export subsidy program, which is paid for by the
USDA. In most circumstances, in my years of experience, in
order to export, the United States uses a direct export
They also have an offer to purchase program, whereby
the Commodity Credit Corporation offers to purchase
butter, cheese, and skim milk powder at predetermined
prices. When those stocks become onerous, they will
dispose of them at world prices. That again
is an export subsidy.
There are no direct deficiency payment-type programs,
no direct income payment-type programs in the United
States for dairy. United States dairy producers, like
other dairy producers, are entitled to the
farm programs that might be generally
available from the USDA or state departments of
agriculture, but essentially the main support to U.S.
dairy has been provided in the past by border
protection. These are the section 22 import
quotas, which got converted into these tariff equivalents.
They've basically been able to maintain in most years a
price higher than the world price through the use of
Mr. Dick Proctor: This is my last question, Mr. Chair.
committee should look into the level of
subsidization through a joint committee. We should
look at U.S. dairy
producers and U.S. farm policies to try to
help dairy farmers, I guess, as we head into the next
into the internal politics of the committee,
do you think this would be a good use
of the committee's time?
Mr. Mike Gifford: It's fair to say that primary
producers—and processors, for that matter—always want
to hope and believe that they're competing on a level
playing field and not against somebody else's treasury.
So I think it is important to know what kind of support
levels are provided to competitors, yes indeed.
Mr. Dick Proctor: Thank you.
The Chairman: Mr. Bonwick.
Mr. Paul Bonwick (Simcoe—Grey, Lib.): Thank you,
Mr. Chair. I have a couple of questions.
Mr. Gifford, does your department monitor
and analyse how the U.S. subsidizes its dairy industry?
Mr. Mike Gifford: In general terms, yes. In fact,
the OECD has a system whereby it measures
the support levels for the major commodities
in all countries. We participate actively
in that program.
Mr. Paul Bonwick: Thank you. I'm keeping it short
because I have a few questions here for you.
So it's entirely possible for you to present
and prepare reports back to this committee
on what the U.S. government is actually doing
with respect to subsidies.
Mr. Mike Gifford: Yes.
Mr. Paul Bonwick: I wanted to bring that up
with respect to the motion that will be addressed
later in the week, Mr. Chair. That's suggesting we already
have access to that information. There's no sense
spending more dollars of this committee, or members
of Parliament reinventing the wheel, if I may.
Second, not having graduated with a BA in agriculture,
I'm wondering if I might get a clearer answer
to Mr. Calder's question, “Is it dumping?”
I'm wondering if there is one
of three simple answers—it is,
it isn't, or you don't know.
Mr. Mike Gifford: It's a complicated subject,
but I'll try to simplify it. What we're talking about here
under WTO law is whether the product in question,
which in this case is a mixture of sugar and butter oil,
is being dumped—in other words, sold at a lower price
in Canada than in New Zealand. It's quite
possible that a combination of butter oil and sugar
is not even manufactured for sale in New Zealand.
Therefore, the only sales they have would be
to export markets. I simply don't know
whether that's the situation.
The bottom line, though, is that dumping doesn't take place
because the inputs are being sold at differential
prices but the product. In this particular case,
it is the butter oil and sugar blend. Is that being sold
in Canada at a price lower than in New Zealand?
Mr. Paul Bonwick: Okay.
Now that the government has chosen
to ask for a decision from the CITT,
is it normal for the government to pick up the costs
for, say, the DFC on a matter like this
if they are going to represent themselves?
Mr. Mike Gifford: No. Parties to a CITT hearing
would pay their own expenses.
Mr. Paul Bonwick: But is it possible for the
government to pick up the costs?
Mr. Mike Gifford: It has never occurred, in my
Mr. Paul Bonwick: If the decision is found in
favour of the DFC or the farmers, does the government
pay retroactively to the loss of income because of its
decision to ask the CITT to make a decision rather than
make the decision themselves and act as a defendant
rather than a plaintiff?
Mr. Mike Gifford: The question of compensation
is a political decision, not a technical decision, obviously.
If the dairy farmers wanted to make that case
to the government, the government would
have to take the policy decision on request.
Mr. Paul Bonwick: Finally, just so that I'm clear
on the second question, at this point in time we don't
know as a government whether or not New Zealand
is actually dumping, based on the lack of information we
have on what is taking place in their country.
Mr. Mike Gifford: Usually a dumping complaint
comes from an affected Canadian manufacturer,
who will complain that the product is being sold
in Canada below the price being sold in a
domestic market. We've received no complaints to that
Mr. Paul Bonwick: There's no need for me to go on.
I just think it is this government's responsibility
to know whether or not it's dumping.
The Chairman: Mr. Hoeppner.
Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.):
Thank you, Mr. Chair.
Just for Mr. Bonwick's information,
if he ever goes into agriculture I would
suggest a Bachelor of Science rather than a
Bachelor of Arts. It would probably do him
more good in farming.
Some hon. members: Oh, oh!
Mr. Denis Coderre (Bourassa, Lib.): Have you
been to school yourself, Jake?
Mr. Jake Hoeppner: Mr. Gifford, the Americans
are very good at hiding their export subsidies or
internal subsidies. On this $45-an-acre subsidy that
grain farmers are getting, are dairy farmers also
getting that for feed production?
Mr. Mike Gifford: Mr. Chairman, my understanding
of the American program is that this is a replacement
for the old style of the Commodity Credit Corporation
cereal program that it used to have. It's a
direct income payment that's paid on the basis of what
you produced in the past, not on what you produce
today. Therefore, if you produced 100 acres a wheat
and 50 acres of corn and 30 acres of soybeans—that was
your base acreage—then you'll get a payment based on
that base acreage, irrespective of what you plant today.
Mr. Jake Hoeppner: Does it really help
the dairy producers as far as feed costs are
Mr. Mike Gifford: The U.S. dairy producers
get feed prices at what I would imagine would be very
close to world competitive prices for both feed grains
and for protein supplements, Mr. Chairman. They can
get all the barley and wheat they want from Canada, and
they can get all the canola cake and oil cake duty
free. So the U.S. dairy producers have access to
inputs at world competitive prices.
Mr. Jake Hoeppner: I'm looking at the
smaller dairy farmer, Mr. Chairman, at the one who still
grows the majority of his own feed. That is where I
was leaning towards. I know in some of the
states that is the major dairy production. Even in certain
areas like New Mexico you have the huge dairy conglomerates.
Mr. Mike Gifford: I stand to be corrected on this
one, Mr. Chairman, but I would have thought that a dairy
producer who was producing corn silage historically
would not be entitled to basically a grain acreage
payment. We'll double-check that, Mr. Chairman.
If is incorrect, we'll let you know.
Mr. Jake Hoeppner: Thank you for that.
We were talking about subsidies, and I heard Mr. Calder say that
the dairy producers really fund export subsidies themselves,
and I think that is true. The Americans are a little
Isn't a subsidy a subsidy if you
set the price high enough in your own country so that
consumers can give you a price so you can afford to
sell 10% to 15% at no cost at all, really? Wouldn't an
appellate body probably look at that as a subsidy?
If they are lawyers and judges... I would be
very hesitant to just feel that would appear as
Mr. Mike Gifford: All I can say on that,
Mr. Chairman, is that economists have a certain
definition of what constitutes a subsidy, and even
that's not a homogeneous definition. Certainly, the
appellate body will have to look at the legal
definition of what constitutes a subsidy and basically
not look at some of the various interpretations that are
loosely used for what constitutes a subsidy.
Just as dumping is used very loosely, Mr. Chairman, it has
a very specific and a very legal meaning in the WTO.
Mr. Jake Hoeppner: Mr. Gifford, what about the
area of the Asian countries? That is where we're all
looking for extra export opportunities. We know
their economy is such that we will probably have
to provide the funding for them to buy our products. I
think it was South Korea that had $55 billion from the
Will that have some effect in terms of probably
leaning favourably towards some industrial countries
that probably have put more funds into that area than others?
Mr. Mike Gifford: Mr.
Chairman, if you recall the case of Mexico,
it had a financial crisis several years ago. It
borrowed a considerable amount of money from the World
Bank and from the United States. Mexico has
successfully paid back all of those loans and the
Mexican economy is growing and growing.
I guess we're hopeful that the
various Asian countries will weather
the current difficulties and basically repeat the
pattern that Mexico has demonstrated. It is
possible to go through an economic crisis and come out
the other end with a strong and more vibrant economy.
The Chairman: Thank you very much. And now
to the graduate, Mr. McCormick.
Mr. Larry McCormick (Hastings—Frontenac—Lennox and
Addington, Lib.): Thank you, gentlemen, for being here
Mr. Gifford, I don't expect you to know everything off
by heart. I would like to find out one of these
times what the average herd size in Canada is—counting the herd as
the number of animals being milked—and also what it is
in New Zealand and the United States.
I'd like to get that information for the future.
I would like you to talk to what kind of discipline
we might expect or what type of system would apply if
there is a two-tier pricing system that comes out of
this if the United States lose, and if they and other
countries move that way?
Mr. Mike Gifford: Mr. Chairman, this is something
that's never been discussed in Geneva. What is the
difference between a 10% tariff and a 300% tariff?
Does it really matter? The bottom line is that you still
have the ability to price differentiate if you have any
kind of tariff with what you export.
At this point, Mr. Chairman, I simply can't speculate
on where the international discussions may lead. All
I have is the sense that if in fact the
international community agrees to phase out direct
export subsidies paid by governments, then those
countries that have export subsidies that are going to
be phased out will then be paranoid about ensuring
that everybody's on the same level playing field.
There will be pressure somehow to reach
some understanding internationally on what you can
and can't do with respect to differential pricing,
with respect to two-price systems.
Mr. Chairman, I can't say anything beyond that at this point.
Mr. Larry McCormick: Thank you, Mr. Chair. I
wonder what percentage of Canadian dairy products are
supplied by imports. I realize there could be a debate
on what we call a dairy import, but I'm just looking
for general information.
Mr. Mike Gifford: As Mr.
Chrétien pointed out, our guesstimate on a
milk-equivalent basis of what we allow into Canada in the
way of dairy products is roughly 3%, if memory serves
me right. That is primarily 20,000-odd tonnes of
cheese and a couple of thousand tonnes of butter and
other bits and pieces beyond that, but basically it's
the cheese. We have a tariff rate quota for just
under 21,000 tonnes of cheese, and that constitutes the
bulk of Canada's dairy imports.
Mr. Larry McCormick: Yes, I realize the
butter oil and sugar blend is of utmost importance
to all areas of Canada where we have dairy producers.
In my riding it's $1.8 million that is taken out of
the economy, so I am concerned. It doesn't affect
the figures much, and that's the concern and the worry
of the producers.
Mr. Gifford, you know so well the schedule of how long
our tariffs exist under the current rulings and then
under the next round of the WTO, where there'll be no doubt a
reduction of the tariffs. You mention that
possibly or probably in the following round
it might be the elimination of subsidies. I wonder if
you could give me a timeframe of years. I'm
not holding you to the year; I just want to learn from you.
Mr. Mike Gifford: Mr. Chairman, the reason I'm
somewhat optimistic that the international community
might agree to phase out export subsidies the next time
around is mainly because of a proposal made by the
European Commissioner for Agriculture, Mr. Fischler.
He proposes basically to reduce his internal support prices for
cereals by another 20%, effective the year 2000. Our
guesstimate would be that if he's successful in
persuading the member states to do that, it will mean
that the European Union will no longer have to use
export subsidies for cereals.
Mr. Fischler and his colleagues also see the
writing on the wall that the international community is
moving towards eliminating export subsidies.
Even for sectors where export subsidies would still
need to be used—other things being equal—for example,
in the dairy and sugar sectors, they anticipate that at
the very minimum there's going to be a substantial
reduction in the use of export subsidies, and quite
possibly the phase-out.
Now, the more sensitive the sector, Mr. Chairman,
usually the longer the transition period. I would
hazard a guess that if countries agree to phase out
export subsidies in the next round, for some
commodities, for some countries, the phase-out period
could be as long as 10 years.
Mr. Larry McCormick: Mr. Chair, and Mr. Harvard,
if I could, this 10 years, if that were the point,
would be 10 years from when? Can you clarify that?
Mr. Mike Gifford: There's still no
agreement as to when the next round will conclude.
It's supposed to start in late 1999. If you're an
optimist, it's a two- or three-year negotiation. If
you're a pessimist, it could be a four- or five-year
A voice: Or ten years.
Mr. Mike Gifford: But let's say, for example, that
the agreement comes into effect on January 1, 2005.
That is not unrealistic. We could say January 1, 2004
perhaps, but say 2005, then 10 years from that.
Mr. Larry McCormick: Thank you very much.
The Chairman: John.
Mr. John Harvard (Charleswood—Assiniboine, Lib.):
Thank you, Mr. Chairman.
Mike, as you said earlier, these issues are very
complex, and the BSC is no guarantee
that we're going to have a full understanding of all
But for informational purposes, let me ask you a
couple of questions having to do with subsidies. First,
is there widespread agreement as to what constitutes a
subsidy under the WTO? Or do we bicker over just
what the definition is? That's the first question.
Second, in the case of, say, dairy farmers,
if dairy farmers choose to have a two-price system, if they
choose to sell their products into the
export markets at a lower price, but they are not
compensated for that lower price and simply take a
lower profit margin, does that constitute a subsidy?
Third, what is the situation with
respect to our current sales of dairy
products into the export markets?
The other thing I would like to know from you,
Mike, is related to what you mentioned earlier in your
opening statement. You said that at one time levies
were imposed, and those levies were used to compensate
exporters who presumably sold their products into the
export markets at a lower price.
You're saying that this is what used to be done,
that's what was done in the past. What's done now?
What is the difference between the two systems?
Mr. Mike Gifford: Mr. Chairman, I will start with
the last question first. Under the old system
provincial milk marketing boards would collect a levy
from individual producers as a tax.
They would then turn the proceeds of this tax over to
the Canadian Dairy Commission. In order to
permit, say, a Canadian cheese exporter to export
cheese, for example, to the U.K., the Canadian Dairy
Commission would then write out a cheque to the cheese
exporter, in effect to make up for the difference
between Canada's domestic price for cheese and the U.K.
So that was the old system. Under the new system the
milk is sold for different uses at different prices.
There are examples where the milk is sold in
Canada to manufacture a process food product,
irrespective of whether it's sold domestically or
For example, in the chocolate industry the Canadian
dairy producers have agreed to supply chocolate
manufacturers in Canada with dairy ingredients at U.S.
They did that because they realized that if chocolate
manufacturers could not get dairy ingredients at U.S.
competitive prices, and the chocolate was coming in
duty-free from the United States, that chocolate
industry would simply close up shop in Canada and move
wholesale to the United States. That was one of
the reasons that dairy producers chose to lower the
price of dairy ingredients in chocolate.
In other cases, such as for cheese, milk is provided
to processors for export at
a price lower than the price they are charged for
cheese that's manufactured for sale in Canada.
In most cases it is the pricing decision
of the relevant individual provincial milk marketing
board. The trouble is, in the Canadian dairy industry,
it's very difficult and sometimes dangerous to
generalize, because not all the systems in each of
the ten provinces are identical. There are minor
differences between each.
Mr. John Harvard: You said that under
the old system somebody wrote out a cheque, so
presumably somebody received a cheque.
Mr. Mike Gifford: That's right.
Mr. John Harvard: Under the current system, is
there any of that?
Mr. Mike Gifford: Nobody receives a cheque.
Mr. John Harvard: Nobody gets a cheque now.
Mr. Mike Gifford: Nobody gets a cheque.
Mr. John Harvard: Does that mean there's no
Mr. Mike Gifford: No, the processor gets milk at
different prices for different uses for different
markets. He does not acquire milk at one
homogeneous price. He buys it at a range of prices for
different specified uses. There is no cheque
writing as there was under the old system.
On the question of two-price systems and whether or not
there's a “subsidy”, some economists might use the word
“subsidy” loosely. I think the bottom line is
that we would argue that differential pricing, where a
firm decides to price a product at different levels for
different end uses, is something that's not unique to
dairy, not unique to agriculture, and is in fact a practice
of many industrial corporations and firms.
We don't regard this as a subsidy. A
definition of subsidy is contained in the
subsidies and countervailing duties provisions of the
WTO, but there is no definition of subsidy in the
agricultural agreement in the WTO.
without trying to get into the legality of all this,
the bottom line is that there are some definitions of
what constitutes a subsidy. They are very specific and
are contained in the WTO provisions on subsidies and
The Chairman: Mrs. Ur.
Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.):
Thank you, Mr. Chairman.
Mr. Gifford, how have we
worded the butter oil and sugar challenge to the CITT?
Mr. Mike Gifford: We worded it very
broadly. The CITT has been given an
extremely broad mandate to look into any aspect it
feels justified looking into, whether it's the
appropriate tariff classification or the
question of the butter oil and sugar blends or other
possible combinations of dairy ingredients. The terms
of reference have been written very broadly in order
to give maximum latitude to the CITT to look into
all aspects they consider to be relevant to this
Mrs. Rose-Marie Ur: I think the butter oil and
Mr. Mike Gifford: No, it's all blends.
Mrs. Rose-Marie Ur: I've been meeting with
some of my dairy farmers, and this is one of the
concerns they brought forward. They felt it wasn't
specified enough. They're concerned it's being
brought under a whole umbrella, and
I think that's why they're a
little concerned with the way the government has
approached this with the CITT.
Mr. Mike Gifford: I think the point the government
was making, Mr. Chairman, was simply that we're aware
that today's problem is butter oil and sugar blends, but
we're also aware that potentially there are other
combinations of ingredients that could come
into Canada outside the
existing tariff rate quota system. We wanted the
CITT to try to quantify it if they could.
Mrs. Rose-Marie Ur: Another concern is this. Why are we
not putting a hold on imports until this is resolved? I
think there is a mechanism in place whereby if there's a
rapid increase in imports, you can
put it on hold until the challenge is resolved.
Why are we not doing this with the butter oil and sugars
coming into Canada until we know what's going on?
Mr. Mike Gifford: I think this is a suggestion
that Canada should apply what's called a safeguard
action, an emergency import safeguard. Canada, like any
other member of the WTO, is entitled to apply an
additional tariff or import quota under certain
specified conditions. But first of all, the product in
question has to be imported in such quantities or
threatened to be imported in such quantities as to
cause or threaten to cause serious injury to the
The one practical problem that has to be addressed is
the question of what is the domestic industry. It's
the manufacturer of the like product to that imported.
So who is the manufacturer of the like product to
butter oil and sugar blends? It's a dairy processor. Is
it a butter manufacturer? But it certainly is not a
primary dairy producer.
The fact that trade occurs in the processed product as
opposed to the primary product has bedevilled
agricultural negotiations for a long time now. Can the
cattleman complain about imports of beef? He doesn't
produce beef; the packer produces beef. So under the
WTO rules, you have to demonstrate injury to the
Canadian packer rather than to the Canadian cattleman.
That's analogous to the dairy industry.
We have certainly informed the Dairy Farmers of Canada
what the various trade remedies are, including Canada's
safeguard provisions. Basically it's up to an
affected part of the Canadian industry to make a case,
but you have to demonstrate threat or actual serious
injury to the CITT.
Mrs. Rose-Marie Ur: Are you saying the DFC has
to present that case and not the government?
Mr. Mike Gifford: It would be the manufacturer of
the product or something that's equivalent to that
product. In this case it would be the Canadian dairy
processors, some of whom are producer co-ops, by the
Mrs. Rose-Marie Ur: The producers aren't really
going to complain if they can get it cheaper. The
farmers are losing out on this, not the processors.
Mr. Mike Gifford: But apart from Ontario, most of
the Canadian dairy processors are in fact producer
Mrs. Rose-Marie Ur: I do not really feel the
numbers quantify the fact that we should be looking at
this or someone should be looking at it. It has almost
tripled in the last couple of years and surely that's
Mr. Mike Gifford: Certainly the possibility of
invoking safeguards is something the CITT will address
explicitly, as I understand it.
Mrs. Rose-Marie Ur: Certainly if that were looked
at a little more diligently, maybe the Dairy
Farmers of Canada would be a little more compatible in
You may not have time or have the information with
you, but I think we'd be interested in seeing a draft
report or a briefing on New Zealand's dairy system,
what subsidies it has in its system and how it
affects the butter oil.
Mr. Mike Gifford: We'd be happy to provide that.
Mrs. Rose-Marie Ur: Thank you.
The Chairman: Mr. Calder.
Mr. Murray Calder: Thank you very much, Mr.
On what Mrs. Ur has said, we looked at 3,200 tonnes of
blends coming in from New Zealand in 1996 and we're up
to 8,200 tonnes right now and it's still moving. I
still have to go on the fact they're flying this stuff
in. There has to be something a little deeper if we
dig far enough.
Mike, do you think we will ever be able to define a
Mr. Mike Gifford: As I said, there is a definition
of a subsidy in the subsidies and countervailing duty
provisions of the WTO, and there are definitions of
what constitutes an export subsidy in the agricultural
provisions of the WTO. Basically it will be up to the
panel and the appellate body to interpret those
provisions to determine whether or not the Canadian
system is an export subsidy or not.
It's our contention that Canada's export pricing
system for dairy products is not an export subsidy as
defined by the WTO agricultural provisions.
Mr. Murray Calder: In that line, I'm very curious.
If there is this internationally recognized definition
of what a subsidy is, how effective is it in your
Mr. Mike Gifford: Well, Mr. Chairman, my
expertise is agricultural. I very rarely stray into
the non-agricultural realms of the WTO, so I might turn
to my colleagues to venture an opinion on the
definition of subsidies in the subsidies countervailing
Mr. John McNab: It's true that
there is a definition of subsidy now contained for the
first time in the subsidies and countervailing measures
agreement that forms part of the WTO. There hasn't yet
been a panel. A panel in the appellate body is the
only means by which you can get a definitive
interpretation of this or any other aspect of the
agreement. The first case has now begun at the request
of the United States against Australia under the
subsidies agreement, but up to now it's taken this
many years and intense negotiations in the Uruguay
Round to arrive at a definition for subsidy. There may
be some argument or debate about how it should apply in
a certain case, and those differences of view will only
be settled by panel.
Mr. Murray Calder: Okay, so we basically have an
internationally recognized definition of what a subsidy
is, but it really hasn't been put to the test yet.
If we're going to have a two-price system that is
going to be recognized internationally, obviously we
have to have a recognized definition of the subsidy
that has been tested. Otherwise, as I would see it,
the scenario would be that—and again I go back to this
balance sheet, where we have to make a profit if I'm
going to stay on my chicken farm or dairy farm,
etc.—you'd probably end up with countries around the
world maybe overproducing what they need domestically
by about 10% to 15%. That would then go out onto the
international market, for which they're obviously going
to produce in a loss situation. They're also going to
average their own domestic price so that they have a
slightly lower profit margin. That 10% to 15% for all
countries concerned is therefore probably going to work
for third world countries, countries that are
developing, or whatever we're looking at. Would you
agree with that?
Mr. Mike Gifford:
[Editor's Note: Inaudible]
Mr. Murray Calder: Okay, what I'm looking at very
simply is this, Mike. If we end up with an
internationally recognized definition of a subsidy, and
if the fact is that I have to address a balance sheet
to stay in business, in essence that subsidy is
basically going to set up worldwide supply management
Mr. Mike Gifford: Not necessarily, Mr. Chairman.
As I said before, you don't necessarily have to have
supply management to have a system of export pricing. I
think this is what the United States is in fact saying.
If they lose at the panel, then they want to set up a
system of export pricing, a two-price system similar to
Canada's, but that doesn't necessarily mean they'll
have supply management together with the export pricing
system. It's quite possible to have a system that
allows you to price differentiate between end uses and
various markets without having a supply management
system. That's the bottom line, Mr. Chairman.
The Chairman: We go to the final question, which
goes to Mr. Hoeppner.
Mr. Jake Hoeppner: Thank you, Mr. Chairman.
Mr. Gifford, agricultural trade is your speciality.
If you could rub a bottle and a genie popped out and
you were the czar of all foreign trade, what would you
do to get harmony into this whole system?
Mr. Mike Gifford: Mr. Chairman, we're well on the
way. As you heard me say many times before, until the
time of the WTO, we had anarchy in agricultural trade
mainly because there were no rules that applied
equally. Some countries had exemptions from the GATT
rules, like the United States. When some countries
joined the GATT, they said they were not including
their agricultural sectors under the GATT rules.
So if you were Minister of Agriculture of Canada and your
officials told you they were sorry, but Canada is
supposed to live by the rules, but the rules don't
really apply to the United States because the United
States has a waiver, and the rules don't apply to
Switzerland because when Switzerland joined the GATT it
basically made its joining conditional on not accepting
any disciplines on agriculture, and the European
variable import levy isn't even covered by any GATT
rule, it's just a sort of a black hole...then you would
sympathize with that minister when he asks, “What the
hell am I supposed to do when it comes to agricultural
trade if there are no effective rules?”
I think the international community realized that
enough was enough in the early 1990s, when in fact
they introduced the agreement on agriculture as part of
the WTO agreement. And now for the first time,
governments know what the rules of the game are. They
know if they are in breach of those rules another
country won't do something unilaterally. Americans
won't use a section 301 and clobber us with a 2x4.
If a country doesn't agree with what you're doing, it
will then take you to effective dispute settlement,
which is binding on both countries. It seems to me
that for a small or medium-sized country such as
Canada, which is so heavily dependent on trade, having a
system of rules that applies equally to the large as
well as to the small and that is backed up by a
transparent and effective dispute settlement
system, this is basically where we're heading.
I suggest, Mr. Chairman, that the proof is in the
pudding. When the commission of agriculture for Europe
basically says the common agricultural policy that
existed in the 1950s, 1960s, 1970s, 1980s and 1990s is
going to have to change because that system is simply
incompatible with a future world where barriers are
coming down over time and where export subsidies are
going to be prohibited...and that's changing the
What I'm saying, Mr. Chairman, is that at the end of
the day, the problems in agricultural trade are
primarily related to the types of domestic agricultural
policies countries practice. And there are ways of
supporting rural sectors that are less trade distorting
and ways of supporting those sectors that are very
trade distorting. And over time, governments, I think,
are making choices to modify the domestic agricultural
policies in ways that are less trade distorting. But
in the so-called good old days, governments could and
did develop domestic agricultural policies in a vacuum,
as if the rest of the world did not exist, because
there were no effective rules, Mr. Chairman.
Mr. Jake Hoeppner: What would you then say to my
good friend Mr. Bob Roehle from the Canadian Wheat
Board? In a documentary shot here about a year ago, he
said, if you farmers think that you're ever in this world
going to get a free-trading system in wheat, you had better
jump in the creek, because the government is not going
to give up their interest in holding down the price of
food, not just in Canada but abroad.
Mr. Mike Gifford: Everybody is entitled to their
own opinion, Mr. Chairman.
Mr. Jake Hoeppner: So you wouldn't agree with
Mr. Mike Gifford: No, Mr. Chairman.
Mr. Jake Hoeppner: That's one for me, Mr.
The Chairman: It's been said recently that Japan
didn't agree to the agricultural rules and got away
Mr. Mike Gifford: That's incorrect, Mr. Chairman.
I think what was being suggested by that comment was
that on rice the Japanese still maintain an import
quota, at least until the end of the next round. But
they had to pay a price for that, Mr. Chairman. The
general rule or guideline was that you had to provide a
minimum-access commitment of 3%, going up to 5% of
consumption, and in order to have a dispensation that
would allow you to maintain an import quota, you had to
cough up 8% access.
That option was offered to the supply management
industries in Geneva, and all of them said thanks,
but no thanks. They were not prepared to basically
provide increased access simply to get the temporary
use of import quotas. They said they would rather, in
effect, rely on these tariff equivalents that have been
So that option was available, Mr. Chairman. It was
turned down by the Canadian supply management industry.
The Japanese now have to provide access for 8% rather
than 5%, and in the next round, if they want this
derogation to continue, they're going to have to
negotiate that with the other rice suppliers,
such as the United States, Thailand and
You can bet your bottom dollar that the
access price those exporters will extract from Japan
will be very high.
So, Mr. Chairman, I don't think
it's fair at all to say that Japan escaped from WTO
disciplines. It did reduce its tariffs by and large on
an average of 36%. It did reduce most of them by that,
with some by less, some by more. Japan is just as much
a full member of the WTO agricultural agreement as is
Canada or the United States.
The Chairman: Was the intention that we could have
done something different for the butter oils because
Japan did what it wanted to do and agriculture
Mr. Mike Gifford: No, Mr. Chairman, Japan in
fact has been subject to WTO panels. It recently lost
a WTO panel on the way it was applying discriminatory
taxes on liquor. From that, Japan has undertaken to
bring its measures into conformity with the panel
findings. So Japan is living by the same rules that
we're living by, Mr. Chairman.
The Chairman: Larry, do you have another question?
Mr. Jake Hoeppner: I have a short one, if you don't
mind, Mr. Chairman.
The Chairman: Larry had his hand up.
Mr. Larry McCormick: Mr. Chair, thank you. It's
just a very brief one.
Mr. Gifford, you mentioned that there are other ways
of providing subsidies to rural areas. Whether it's
now or at another time, I would like to learn of some
Mr. Mike Gifford: Basically, Mr. Chairman, direct
income payments are basically income transfers from the
government to the producer, and are made without being
directly linked to current production. That's one way.
When we started the Uruguay Round, nobody had heard of
decoupled income payments. That was an expression that
grew up during the course of the negotiations. Unlike
the old system in which you had deficiency
payments—basically, the more you produced, the more
government payments you got—it was linked to how much
you produced this year. I think the American grain
producer would be the first to admit that the old
system of grain supports that they had in the United
States basically encouraged producers to farm the
program rather than to produce for the market. Right
now, you have relatively more soya bean and corn
production in the United States and relatively less
wheat production because of the change in the U.S.
grain support program.
Certainly in Canada's case, Mr. Chairman, the
elimination of the WGTA has had a dramatic impact
on western Canadian agriculture. Before it was
primarily a grain-dominated agricultural sector in
which livestock production in effect was discouraged,
and in which value-added processing was in effect
discouraged because it paid producers to ship their raw
material out of western Canada. Today that program
change has resulted in a massive diversification effort
in western Canada, with more livestock production and
more food processing.
Mr. Larry McCormick: Mr. Chair, if you'll allow my
final comments, it's certainly good to see what's
happening in Brandon, Manitoba. I am glad to know that
the Canadian Wheat Board is there for the rest of the
growers in western Canada and that they can be assured
of a healthy future.
Thank you, Mr. Chair.
The Chairman: Mr. Hoeppner, you had a small
Mr. Jake Hoeppner: Yes.
I was just wondering about the import duties you're
talking about on the liquor in Japan, Mr. Gifford.
Does that also hold true for canola products?
Mr. Mike Gifford: No, I was talking about a
domestic tax on liquor that was lower on local liquor
as opposed to imported liquor, Mr. Chairman. Basically
that was a case of discrimination between the way tax
treatment was applied to domestic liquor as compared to
In the case of canola, the Japanese have a specific
duty on canola oil. On canola, it's duty-free. On
canola oil, it's so many yen per kilo, and they reduced
that tariff by 36%. The problem that the canola
growers and canola crushers in Canada face is that
because the yen has appreciated over time, the ad
valorem equivalent of that specific duty has gone up
Obviously one of
Canada's objectives in the next round of negotiations
is to negotiate duty-free access around the world for
all oilseeds and oilseed products—a so-called
zero-for-zero approach to oilseeds, including canola.
The Chairman: Thank you very much, gentlemen, for
coming in this morning.
This meeting is adjourned until Thursday at nine o'clock.