Mr. Steve Verheul (Chief Trade Negotiator, Canada-European Union, Department of Foreign Affairs and International Trade):
Thank you very much, Mr. Chairman.
Good morning, everyone. Thank you for inviting me to speak to you today about the status of the negotiation of a comprehensive economic and trade agreement, otherwise known as a CETA, with the European Union.
I plan to provide you with a brief overview of where the negotiations are at, outline some of the key outstanding issues we will need to solve in the coming weeks and months, and give you an idea of the upcoming next steps in the negotiations.
I will start with the status of the negotiations. Overall this remains the most complex, comprehensive international trade negotiation Canada has ever undertaken, and the same is true for the EU. Although the negotiations have now been under way for more than three years, we have never stalled, we have never lost momentum, and we have maintained a positive and constructive atmosphere throughout this period on both sides.
Since we completed our last formal round of the negotiations last fall, we have entered a much more intensive, focused phase of the discussions as we deal with increasingly difficult issues. We are now meeting at least once a month with our EU counterparts, and are having frequent video conferences and teleconferences in between those meetings.
With respect to the draft text of the agreement, most chapters are either completed or differences have been narrowed down to only key areas of divergence between our positions. We have exchanged offers on goods, government procurement, and services and investment. Those offers have been extensively negotiated.
At the moment, much of our focus is on three areas that are somewhat behind the rest of the issues. The first is rules of origin, which is essentially about determining the rules by which a product will be considered to be of Canadian or European Union origin, and thereby eligible to receive preferential treatment. The second is services and investment reservations, which is about determining which areas or sectors will be exempted from certain of the services and investment obligations of the agreement. The final area is the investment protection rules, where negotiations have started late because the EU only recently acquired the competence from member states to negotiate these provisions.
These areas are all highly detailed and complex, and inevitably take a considerable amount of time to sort out.
On rules of origin, Canada and the European Union come from quite different places. Our approach is to have quite liberal rules of origin, as many of the products we produce rely heavily on inputs from other countries, most notably the U.S. The EU, on the other hand, as a union of 27 countries, has developed more restrictive rules of origin, as a considerable amount of trade takes place within the EU market itself. Despite these differences, we have been making some good forward progress on rules of origin, including on agricultural products, fish, and industrial products. Both sides are making compromises to close the gaps between us, but there is no substitute to doing this product by product, and that takes time.
On the services and investment reservations, we had convinced the EU earlier in the negotiations to use the approach of taking commitments on a negative list basis, which essentially means that all areas are covered by the agreement, except where you take specific exceptions. We have also made good progress in this area, but this is the first time the EU has used a negative list approach. It has required extensive and lengthy discussions with member states to achieve a consensus on their positions.
On the investment protection text, as I mentioned, the EU only received its mandate on these issues several months ago, so this area needs to catch up.
So that's where we're at. At this point, both sides are maintaining comprehensive objectives for the negotiations, and both sides continue to be creative in looking for solutions. Despite the ongoing financial difficulties in the EU, we have seen no change in their commitment to complete these negotiations. Still, we clearly have some challenges ahead. As we move forward, the most difficult negotiations will be on goods, government procurement, intellectual property, and services and investment restrictions.
In the area of goods, first of all, not surprisingly we have challenges on agriculture, as there are sensitivities on both sides. Fish will also be a challenging area, as we have strong interests in the EU market, but they have some defensive interests. Finally, work remains on autos, both with respect to access to our market and for our access to the EU market.
Intellectual property will be another challenging area. While gaps have been narrowed on copyright, given the copyright bill in the House, we have made limited progress on EU demands on geographical indications for agricultural products, and have made no progress on the issue of patents for pharmaceuticals.
We have made an ambitious offer on government procurement in the negotiations, but this is the EU's most important offensive priority, and they can be expected to push for more.
Finally on services and investment, each side is looking for more from the other side, whether it's our interests in professional services, environmental services, research and development, or labour mobility; or the EU's interest in financial services, investment restrictions on energy, and others. We will need to reach accommodations on these issues as well.
Overall, while that might sound like a long list, the reality is that even most of these issues are very well advanced, and the negotiations are being increasingly narrowed down to the final issues that will need to be resolved in order to conclude the negotiations.
Provinces and territories remain very closely engaged in these negotiations. We meet with them for at least a couple of days every month to review the outstanding issues and to discuss strategies for resolving differences in the remaining areas, and they continue to attend negotiating sessions covering areas under their jurisdiction. Their involvement continues to be highly constructive, and this has enabled our approach on all issues to be unified, coherent, and ambitious.
Finally, on next steps, we had our last meeting with the EU here in Ottawa two weeks ago, and our next meeting is scheduled to take place in Brussels beginning on July 16, 2012. We are planning to meet with the provinces and territories for three days the week before that to finalize our approaches to the various issues to be discussed at that meeting. Following the July session, we have meetings planned for September and October, and at that point we will need to assess how far we are from the finish line. Both sides continue to hold the objective of completing the negotiations in 2012.
Thank you for your attention. I would be pleased to respond to any questions you might have.
Hon. Wayne Easter (Malpeque, Lib.):
Thank you, Mr. Chair.
Thank you, both, for appearing before the committee in an open session.
Steve, as you did in your former capacity on GATT, we know you do the best you can for the country given the mandate you receive from the government. I do want to say in the beginning that I think all of us who were in Brussels really appreciated the opportunity to meet with you and the European negotiator.
I don't believe you've had any sessions yet since the Prime Minister gave his little lecture to Europe. We're wondering if that will have an impact on the discussions in that the Europeans certainly know that since this Prime Minister came into place, the accumulated debt of the country has gone up by $140 billion. They do their research.
Do you think there will be any impact from this kind of attack on Europe, and from not being there to support them, in terms of our ability to get an end result on the CETA. It seems to me that last week we saw that the trade minister had basically been replaced by the Prime Minister's chief of staff to try to get a TPP concession, and the Prime Minister's priority seems to have moved to the Trans-Pacific Partnership. So we're wondering if the government's real priority is still CETA and whether there will be any impact from the Prime Minister's lecture to Europe.
Mr. Ed Holder (London West, CPC):
Thank you, Chair.
I'd like to thank our guests for attending this morning.
A couple of months ago, Mr. Verheul, we had European parliamentarians come to Ottawa. We had a special chat with them. It was rather interesting. At that time, they were pushing members of this committee to push you to move this agreement along and were suggesting that somehow Canada was the laggard or at least the slower one in the process in terms of the negotiations.
I've heard some feedback that this might not be the case, but I'd like to get a clarification from you, if I may, please. You've been going at this for a little while. I don't know if you think this is breakneck speed, but I think we're making progress. I'm sure that sometimes to you it feels painful, that progress, but—
Voices: Oh, oh!
Mr. Ed Holder: I'm trying to understand: is Canada the laggard in these negotiations? Is there one? Is there fault to be laid?
Also, then, I guess ultimately, what's your sense of this deal concluding, if you had a belly-button guess, on December 31, 2012? Your thoughts, please.
Mr. Ed Holder:
We all hope that as well.
You made reference to the negative list, and I will say to you that one of the comments we heard through parliamentarians across from us from Europe was about how that was something they had to come to terms with. My sense was that they had done that, though, and that—thanks to the support of negotiators from the EU—countries had supported that. I think that's a big step forward.
I try to share with my constituents on a weekly basis what goes on in various aspects of Parliament. I do this through a newsletter, and I send it out to some 20,000 people per week. The feedback I get when I discuss CETA is people asking why we would hitch our wagon to a place—a whole variety of countries—where there are a variety of financial challenges. Of course, Greece is the one that most recently dodged a bullet, and I hope that's ultimately a true thing.
What answer would you give to my constituents—and maybe I will just steal your answer if it's better than the one I am trying to think of—as to why Canada would want to do that? Are we putting Canada at risk somehow? I'd like to refresh that answer. I know we've talked generally in the past about benefits. It comes back really to what the European parliamentarians told us, which is, “Push this along, Canada, because there are going to be changes of government”. One of our colleagues earlier in his questions asked you that.
Can I ask you, please, how you would answer the constituents for me? Could you give me the great answer?
Mr. Steve Verheul:
Sure. It's a fairly simple process in Canada. It's much more complicated in the European Union.
After we complete the negotiations and both negotiators have signed off as saying the negotiations have now ended, the first thing that happens is that it will have to be put through a process of legal scrubbing to ensure that the language we've negotiated is legally consistent throughout the agreement. Then there will be a period of having to translate the agreement into 22 languages within the European Union, which will take a considerable amount of time as well.
Then, once we do have that final agreement, it will go through the process of getting agreement within the Council of the European Union. It will also have to get agreement within the European Parliament and then, to the extent that this is a mixed agreement, as they put it, which includes areas under competence of both the European Union and the member states, it would eventually have to go to individual member state ratification.
Just to clarify that, traditionally the European Union will provisionally apply the results of the agreement while member states are going through the process of ratification, because most of the elements in the trade agreement will be under European Union competence, whether it's tariffs or whether it's most of the services and investment provisions. So 99% of the agreement could be put into place far earlier.
Mr. Gordon Bacon (Chief Executive Officer, Pulse Canada):
Thank you, Mr. Chairman and members of the committee. Thank you for the opportunity to speak to you today.
Pulse Canada has been in existence for 15 years, and we have been steadfast supporters of bilateral trade agreements, because market access really is a prerequisite to our success as an exporting sector in agriculture.
I'd like to use my time to talk about the Canadian pulse and special crop industry's perspective on the importance of pursuing a comprehensive and high-level economic partnership agreement with Japan. I'd also like to mention a couple of issues that I think are also very important to our continued success as an exporter.
For your information, Japan is a top-five importer of Canadian beans, mustard, sunflowers, and buckwheat. As indicated in table 1 of the package that was circulated to you, total Canadian pulse and special crop exports to Japan have averaged about 27,000 tonnes and are valued at approximately $27 million per year. However, the pulse industry does believe that the export values for peas and beans are greatly inhibited by the current import quota in Japan, the in-quota tariff, and as I'll explain to you, the prohibitive over-quota tariff.
As noted in figure 1, Canada's share of Japan's 120,000-tonne import quota for peas and beans is approximately 16%. These in-quota exports are also subject to a 10% duty, which is approximately $100 a tonne. As I mentioned, the prohibitive over-quota tariff is an amazing $4,580 a tonne. This is a clear signal that when the quota is filled, there will be no more imports of peas and beans into Japan.
Something Pulse Canada raised as an opportunity to enhance trade with Japan more than 10 years ago was to have Japan differentiate between feed peas and other pulses. As a duty-free importer of other feed grains, we felt this was an opportunity to expand our market share into Japan, and with the strong nutritional and environmental footprint that we can associate with including peas into animal rations, we thought it would also be of great value to Japan.
A comprehensive and high-level economic partnership agreement with Japan is an important opportunity to negotiate enhanced access to Japan through removal of quota and tariff restrictions. At a minimum, it's an opportunity to increase the overall quota, eliminate or reduce both in-quota and over-quota tariffs, and create special tariff lines for feed peas. Value-added products, such as pulse starches and proteins, also face prohibitively high import duties. Pulse flours face import duties of approximately 13%.
Canada is a leader in the development of novel food ingredients from pulses that can be used to not only boost the nutritional profile of food products but also change the environmental footprint. Given that these are high priorities for Japanese consumers, we think this is an opportunity to introduce some innovation into the marketplace.
I want to share with you a story I have from a recent discussion with a member of the Japanese pulse importers association. At a recent international meeting, we talked about the opportunity to reformulate some traditional Japanese food products, including instant noodles, and to then market them to consumers, highlighting their higher nutritional quality, as well as their environmental sustainability, which would be improved if a mix of pulse and wheat flours were used. This was of great interest to the Japanese importer, but clearly we're going to have to have reform of current quotas and duties before we can realize any of these kinds of innovation opportunities.
Addressing quota and tariff issues does not, in itself, ensure that the path has been cleared for more business to take place. An economic partnership must also look at other policies and regulations that can impact trade between two countries. I'd like to highlight one challenge that all commodities face when exporting to Japan.
When a crop protection product, a pesticide, is registered for use in Canada, it undergoes extensive testing for both efficacy and safety. Part of the registration data that is submitted is to determine the residue that would normally be expected to be found when the pesticide is applied according to label recommendations. This establishes what is known as a maximum residue limit or an MRL. Additional tests then look at the impact that exposure to this minute residue would have on human and environmental safety when people and the environment are exposed to this over a lifetime. This requirement also ensures that there's a wide margin of safety for all pesticides that are registered for use. But what may come as a surprise to some is that when an MRL is set in Canada, that does not mean it will be accepted by the importing country.
The process that is used by regulators in Japan and the UN body Codex Alimentarius to review scientific data on safety of residues does not even start until after a product has been registered for use. This means that Canadian farmers can legally be using pesticides in Canada that make the crop unmarketable in Japan or any country that relies on Codex Alimentarius.
While the Canadian regulatory system works very hard to move registrations through the system here on a timely basis, these new products often can't be used by farmers, or if they are used, they must be segregated to keep them out of countries where MRLs are not established. This is in fact the case for a new desiccant that has already been registered in Canada but will not be marketed to farmers because the MRLs are not in place either in Japan or at Codex.
The impact of this disconnect in approaches to setting MRLs between exporting and importing nations is trade risk and a slowing of the pace of innovation in using new crop protection products.
The solution can be found through closer regulatory links at both the multilateral and bilateral levels, including being a part of the discussions taking place between Japan and Canada. Regulators from Japan and Canada do need to work more closely on the approaches that will provide assurances of health and environmental protection but ensuring that there isn't additional trade risk.
As two countries with sophisticated pesticide regulatory agencies as well as strong commitments to food security and price stability for the developing world, Canada and Japan should also be close allies in moving to a more effective process at Codex. There are benefits to consumers in every country, and to farmers around the world, in having up-to-date food safety regulations and taking the risk out of food trade.
An economic partnership between Japan and Canada can have greater value when it goes beyond discussions of tariff and quota restrictions. As an affluent, quality-conscious market with a strong consumer interest in food that provides health benefits, and with an interest in environmental sustainability, Japan is a natural trading partner for Canadian agriculture. Working together, Japan and Canada will find common interests in trade and economic growth but also in broader social issues that can be linked to trade: improvement in health and environmental sustainability and the elimination of trade risk.
I would like to make a closing remark on what Canadians can do to enhance our reputation and performance as a reliable trading partner for Japan and every other country. While it may be understandable that we want to cite performance data from a timeframe when the logistics systems are performing well, Canadian customers, like those in Japan, have long memories, and for this reason shippers have long memories as well. People don't forget when their food, or their fuel, didn't arrive on time. While trade and partnership agreements open doors to enhanced trade relationships, being the reliable supplier year after year is what's needed to keep a trade relationship.
Pulse Canada has been part of a broad coalition of exporters, and there is a high level of agreement that we can do better, and we have to do better. Service-level agreements will go a long way to adding predictability and balanced approaches to dealing with the performance and non-performance of the Canadian logistics system.
While the discussions today are about a comprehensive and high-level economic partnership agreement between Japan and Canada, an EPA is just one of the tools that businesses need to be able to attract and retain customers in Japan and customers in other markets. A systematic approach to identifying and eliminating tariff and non-tariff barriers to trade, along with efforts to gain additional efficiencies for the entire logistics chain in Canada, will ensure that our trade gateways are busy and operating at peak performance day in and day out, year after year.
I appreciate this opportunity to talk about the comprehensive economic partnership agreement and to introduce our support for government legislation on service-level agreement.
I also appreciate the opportunity to identify the strong need for leadership by Canada in moving towards a harmonized approach to international food safety standards at Codex.
All of these are essential elements of expanded international trade.
Mr. Ray Armbruster:
Thank you very much, Mr. Chairman and honourable members of the committee.
Manitoba Beef Producers certainly appreciate this opportunity to appear before you to discuss the benefits of enhanced trading relationships with Japan.
My name is Ray Armbruster. I'm a cow-calf producer from the Riding Mountain area in western Manitoba. I've served as a director for the Manitoba Beef Producers for the past six years. I'm currently the president of our association.
Joining me today is Cam Dahl, our general manager, and Lauren Stone, who is our policy analyst.
I'll begin by giving you a brief introduction to Manitoba Beef Producers and highlighting the importance of beef production in Manitoba's economy. Cam will follow with some specific points on the potential of a Canada-Japan trade deal.
Manitoba Beef Producers prepared a briefing note for the committee, which I believe you all have. I will not be reading this brief directly. The points that will be raised are covered in the written brief.
Manitoba Beef Producers has a producer-elected board of 14 directors from all regions of the province of Manitoba. All are dedicate men and women with a strong representation of young producers and young directors. We represent approximately 8,000 producers, a number of whom have been dropping in recent years. Market closures have contributed to the loss of producers in Manitoba.
Agriculture is an economic driver in Manitoba. The industry makes up about 28% of the province's GDP and is Manitoba's single largest, wealth-generating activity. Beef production represents Manitoba's single largest sector in terms of the number of farms and family farm operations. The economic impact of Manitoba's beef producers is large. Our industry's demand-creation power means that not only rural communities continue to survive but also other centres, such as Winnipeg and Brandon and other major urban centres, can continue to receive the extensive economic derivatives of our industry's wealth creation. Our industry creates jobs and growth in both urban as well as rural centres.
I will turn it over to Cam to continue our specific comments on the potential of an enhanced Canada-Japan trading relationship.
Mr. Cam Dahl:
Thank you, Ray.
Members of the committee, it's good to appear before you again.
I will highlight a number of areas that are covered in the briefing note you all have. I'll touch briefly on the importance of trade to Manitoba Beef Producers, talk a little about the opportunities under a new partnership with Japan, and highlight the importance of science-based trade. This fits well with some of the comments Gordon made and I think highlights the importance of these issues that go across sectors. Then I'd also like to touch a little on some of our concerns in the beef industry about being left behind.
First, on the importance of trade, trade and open markets are absolutely critical for beef producers across the country, including here in Manitoba. Approximately 50% of our production is exported, either as live cattle or as beef. Beef producers know first-hand what happens when we lose market access. We are still recovering from the crisis caused when borders closed when a BSE case was discovered in 2003.
The United States is our most important customer, taking up about 73% of our exports. But we have learned the need for diversity. Just as an example, country-of-origin labelling legislation hampered and restricted our trade with the United States significantly. This shows what can happen when politics interferes with markets. We are hopeful that this issue will soon be behind us, but it clearly demonstrates the need for alternative markets.
To move to some specific opportunities from enhanced trade with Japan, exports to Japan have not yet recovered from the peak in 2001, when the value of our exports exceeded $171 million. Restrictions resulting from BSE are the key reasons for our loss in market. I will touch a little more on this in a moment, when I talk about the need for science-based trade.
Japan is an important agricultural market for Canada. Gordon highlighted this as well. We believe there is sufficient room to expand our beef trade, because the high quality of our product meets the needs of Japanese customers. We also know that the percentage of beef supplied by imports in Japan is going to increase in the years to come. We don't expect to fully replace the United States and Australia as Japan's leading suppliers, but we know we can tilt the trade balance in our favour.
Canada faces a stiff Japanese applied tariff of 38%. Further, the potential for the Japanese tariff is actually 50%. This is often referred to as a snap-back tariff. If Japanese imports from Canada increase quickly, the government can increase the applied tariff up to 50%. What is meant by “quickly” is that if there is an increase in any 12-month period of 17% or more, that applied tariff can be snapped back up to 50%.
The applied tariff makes our beef more expensive. The potential snap-back tariff creates business uncertainty for our processors and our producers. Both limit our ability to access the high-value Japanese market. The removal of these barriers would significantly open up the market for Canadian products. This will promote stable growth and development for our industry here in Canada, which in turn will promote the sustainability and growth of our rural communities and further develop jobs in our urban centres.
I'd like to touch a little on science-based trade and reinforce some of the things Gordon mentioned.
Restriction placed in Japan on Canadian beef imports following the discovery of BSE here underlined the importance of science-based trade. Restrictions are outside of the OIE, or World Organisation for Animal Health, guidelines and are still in place. We are working hard to have these reduced and eventually removed. The specific restrictions I'm talking about are outlined in your brief in front of you. In the interest of time, I won't go through the details.
How is that important to trade negotiations? Historically, trade negotiations have focused on tariff and quota barriers, and that's important. We talked about the 38% tariff and the potential 50% tariff. However, going forward, sanitary and phytosanitary rules are going to be just as important as tariff barriers, if not more important.
All governments feel from time to time political pressure to restrict trade. In the past, tariffs and quotas have been the tools of choice. Those are always bad for Canadian agriculture.
As these trade barriers are removed through negotiations, governments will turn to other means, such as hiding behind unscientific health or safety rules. It is absolutely critical that sanitary and phytosanitary rules be included in these negotiations. It is unacceptable to our industry to see tariff walls come down only to be faced with unscientific restrictions that are just as impermeable.
Science-based food safety rules, and other rules of trade such as environmental conditions, must be part of any future agreement with Japan—or any other country, for that matter. Also required is a robust dispute-resolution process that will ensure rapid and independent resolution of any trade dispute resulting from different interpretations of the sanitary and phytosanitary rules of trade.
I'd like to close with some comments about our concerns about being left behind. Manitoba Beef Producers would be remiss if we did not raise a significant concern of our membership—that of being left behind.
It is not a secret that agriculture is a sensitive topic in all trade negotiations. MBP’s members are concerned that Canada and Japan may reach a comprehensive new trade agreement that fails to include significant gains for agriculture—of course, for the beef industry specifically.
This would not be the first time agriculture has been left behind. The Uruguay Round of the General Agreement on Tariffs and Trade, which of course established the WTO, largely ignored agriculture. All attempts to correct this deficiency within the WTO have, to date, failed. If the Doha Round of negotiations, which was designed to deal with outstanding barriers in agriculture, is not dead, well, it's certainly on life support.
MBP implores this committee to not let that lack of progress on agriculture issues transfer to any Canada-Japan negotiations. Our industry depends on trade. We depend on open access. We cannot afford to be left out of any new agreements.
Our competitors, such as Australia and the United States, are also hoping to negotiate greater access, for example through the Trans-Pacific Partnership. The Canadian beef industry cannot afford to be left behind, especially if our competitors are successful in negotiating increased and more secure access to Japan.
Mr. Bev Shipley (Lambton—Kent—Middlesex, CPC):
Thank you, Mr. Chair.
Thank you to the witnesses for being here.
Mr. Bacon, I'd like to follow up with you on the issue you were just talking about. In your statement, along with all the concern about getting products, you mentioned that people have long memories when they don't get their food or don't get their fuel on time. I wonder if you can be just a little more specific about the issues, because quite honestly, we're going to spend a lot of effort and resources building a trade agreement with Japan, as we have—and you may have been in earlier—following up on CETA.
Those types of discussions give us an idea of the amount of effort that it takes on both sides. But if we cannot commit to making sure that those products get to our producers, to you as a producer, to our friends from Manitoba, and to beef producers across Canada when we promised they would, then we have put in some ghost barriers that the Japanese will see through very quickly.
I wonder if you could just expand a little bit about what we need to be doing or about what the big hurdles are with regard to this shipping issue.
Mr. Gordon Bacon:
We have a very complex logistics system in Canada, especially if we take a look at pulse exports to Japan, which all go in containers. You can imagine the number of steps between moving them from a farm to a processing plant and arranging equipment—whether that be a container in an inland position or a hopper car or a boxcar—to move them to a port position where they have to be reloaded into ocean-going containers and booked on vessels, and we have to find space at the port for them. The whole logistics system has to work in a very coordinated manner.
Taking a look at this issue very closely over the last five years, we've seen that a lot of individuals and individual companies in the system work to optimize it for themselves, which unfortunately can have the effect of sort of suboptimizing the performance of the entire system.
We've talked about our need to optimize system performance. The railways play a key role in this, because they are the link that is common through a lot of these elements of the logistics system. Certainly railway performance has much improved in the last number of months over what it was in the recent past.
But we have to make sure we have some guarantees that we're going to have the kinds of linkages in the system to ensure we can improve. I'll just cite one particular fact that I think illustrates it well, which is that for agricultural exports in containers out of North America, we have the worst record in all container shipping around the world. At one point we had more than 40% no-shows, bookings that were made and cargo that did not arrive. The steamship lines have told us that you pay for that.
Because we have inefficiencies, everyone is trying to make sure they're operating with a full system. It's like airlines that overbook. But can you imagine if airlines overbooked at 40% the kind of chaos we would have? Well, this is the kind of problem that we're having in our shipping system, and we all have to look at the responsibility we have to contribute to those kinds of problems.
I think there need to be some better linkages. We need to have some consequences for non-performance through all the players, and that is one of the things we're lacking.
When I talked about service-level agreements, it really was to define what kind of service you're buying, what the obligations of service providers are, and what the consequences for non-performance are. I think it's an incentive to perform well, if you know that you've defined what you're going to do and you've said you're going to do it. I think the concept of service-level agreements is going to go a long way, not only for our industry in agriculture. It was very interesting to see the strong level of support from a number of shippers in other sectors as well.
Hon. Wayne Easter:
Thank you, Mr. Chair.
Thank you to the witnesses, both here and in Winnipeg.
I'll cut my questions short too, Chair, to try to save a little time for the end.
Just on the point you made, Gordon, with the worst record on shipping, I think a lot of that comes back to the service review and the fact that we've been waiting on the Government of Canada for the service review for almost forever now. It's unacceptable. They should act on that service review, take the railways on and do it.
In your paper you talked about addressing the quota and tariff issues, and how that in and of itself is not enough. Further down you talked about the regulators from Japan and Canada. In advance of the trade agreement, should the regulators within Canada and Japan be working more closely to try to solve some of those problems? They're not really a negotiating point, but a lot could be done just by way of discussion and a similar regulatory regime.
You had mentioned, Mr. Dahl, that we need this negotiation, that we not be left on the sidelines. Do you have any comment you want to raise on Korea? Korea is already an established market for Canada—beef and hogs. We don't seem to be in the game. Here we are talking about new agreements, and we're risking the potential of losing a billion dollar market for beef and hogs, because for some reason, the government seems to be asleep at the switch on an established agreement.
So there are two questions.
Mr. Cam Dahl:
Thank you, Mr. Easter. I appreciate the question.
On Korea, we are pleased that we have been able to reach an agreement with Korea on the restrictions they had in place, which were put in place after the BSE and were, in fact, not in line with those of the World Organisation for Animal Health, the OIE. Canada had launched a WTO case, and we're pleased that we're moving forward with this in a way that doesn't require us to go back to the WTO.
In fact, that WTO case has been suspended because Korea has come into compliance. But there's no question that it would be beneficial to Canada and to the beef industry in Canada if we were to have a free trade agreement with Korea. There's absolutely no question about that, and it's something that the cattle industry and the beef industry strongly support. We strongly support revitalization of those negotiations, and we hope they're successful because right now we're at about a 22% disadvantage to U.S. products going into Korea. That's a pretty big hurdle to overcome, so absolutely it would be beneficial to have an agreement with Korea. But on the non-tariff barrier front, I think we have seen some movement in recent months, and we have suspended our WTO case because of that movement.
I just wanted to add a couple of comments to the discussion on regulatory harmonization. I think this issue goes beyond the grains and oilseed issue. It covers all of agriculture. We see that with animal pharmaceuticals as well. I hope we can have this kind of regulatory cooperation with all of our trading partners. I know there are discussions through the Regulatory Cooperation Council with the United States as well, and I hope those will be helpful, but these are issues that do need to be part of any future trade negotiation. It's not just about tariffs and quotas anymore.
Mr. Ed Holder:
Thank you, Chair.
You know, it never fails to amaze me, Chair, that when a member of the Liberal Party gets the opportunity to do a body slam against the government, he takes it, and I find it very distressing.
Here we've had Her Majesty's loyal opposition stay on the subject at hand, which is the matter at hand, which is important, and that's what we have our witnesses here for. It's great that we all have opinions on different things, but it's consistent and I find it disturbing.
Having said that, I'd actually like to stay with the topic, which actually happens to be Japan.
So if I may, I'd like to say to our guests thank you very much for attending. The advantage you all have.... Mr. Dahl, I heard you say very clearly not to forget agriculture. I know we hear that. I know that as we approach the discussions relating to Japan, we will not forget agriculture, but it's important that you said that. I would suggest to you and your group, the Manitoba Beef Producers, and to Pulse Canada that because we're at the very start of these discussions, it's very important that you're here. This is not a situation in which we have signed something and you're playing catch-up and saying, “don't forget me” or “what about this or that?”. You have the opportunity to provide real input that, I think, matters and is substantial to the discussion as we move towards signing a trade agreement.
I don't think we stand still, and I do think we need to ensure that we put trade agreements in place around the world. As I look at some of the information that the beef producers have provided, I would say that for your association in Manitoba, the Japanese market would be substantial.
Could you—whichever person at Manitoba Beef Producers is the right person— just explain to me more about the snap-back? Help me understand what exactly that is again, because it sounds like an extra way for the Japanese government to initiate another tariff. I'm not a rural guy, but I enjoy the odd steak. Could you help me understand what that means to us in this negotiation?
Mr. Cam Dahl:
Absolutely. Currently the applied tariff in Japan, the tariff they apply to our products going into Japan, is 38%. But under the world trade rules, they could actually have a 50% tariff.
That 38% tariff will snap back—it will increase. The Government of Japan has the ability to increase that tariff if it sees substantial increases in imports from any particular country. If Canada's beef exports to Japan were to increase 20% next year, that is, within the next 12 months, Japan could actually significantly increase that applied tariff to protect its market.
When you're looking at the benefits of reducing tariffs and trade barriers, it's not only the applied tariff that's important; it's also the tariff rate that Japan could apply, because that creates business uncertainty. That's one of the key benefits from trade agreements, creating certainty in the market.
We're not an industry that has a short production cycle. If we're producing to meet a particular demand in the market and all of a sudden we see that market's tariff increase 20%, that's a really big hit across the entire production chain. It takes time to produce for that.
If we are able to have long-term certainty and stability in a market, it will significantly increase the business certainty for cow-calf producers like Ray, for feedlot operators, as well as for our processors. And there is significant value in creating that business certainty.
Mr. Don Davies:
Thank you, Mr. Chairman.
The motion is in front of us. I just want to speak in support of the motion.
It was the official opposition New Democrats who moved the motion to have the study. I want to thank all members of the committee for agreeing to that, because I think it turned out to be helpful.
I think we should have a brief study, for a few quick reasons. As Mr. Easter just pointed out, we have had two days of hearings and we received some pretty good testimony. Most importantly, though, I think all of us were somewhat disappointed that the report that came forward did not really have a human rights impact assessment, and I think we all want to make sure that it does have one next time.
It will be good to be able to give some direction to the government on maybe why that report was not done and what kinds of suggestions we may give to the government to ensure that a report is completed in a manner that complies with the legislation and satisfies the desire of all members of this committee to have such a study.
To me, it's just finishing off the logical conclusion of the study that we had with some concrete recommendations. This is not about politics. This is about making sure that the government does provide the report it agreed to, and which, I'm sure, it wants to produce for all Canadians.