AGRI Committee Meeting

STANDING COMMITTEE ON AGRICULTURE AND AGRI-FOOD

COMITÉ PERMANENT DE L'AGRICULTURE ET DE L'AGROALIMENTAIRE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 27, 1999

• 0905

[English]

The Chairman (Mr. John Harvard (Charleswood St. James—Assiniboia)): Members, we'll bring our meeting to order.

Today we're going to revisit an issue that has been around here for some time. We're going to have a meeting regarding the impact of the recent Canadian International Trade Tribunal's decision on the tariff classification of certain butteroil blends.

We'll be hearing from two groups. First is the Department of National Revenue, and from the department we have Mike Jordan and Phil McLester. Mr. Jordan is director general, trade policy and interpretation directorate, customs and trade administration branch; and Mr. McLester is acting director, tariff classification and international nomenclature, customs and trade administration branch. Boy, government can come up with some wonderful titles. Nomenclature and tariff treatment policy division—it's almost intimidating. I understand the gentlemen from Revenue Canada will go first.

I guess I didn't mention Dairy Farmers yet. John Core is from the Dairy Farmers of Canada, along with Shelley MacInnis, assistant director, policy and government relations.

We'll turn to Revenue Canada first, followed by Mr. Core, and then we'll have rounds of questions.

Mr. Jordan.

Mr. Mike Jordan (Director General, Trade Policy and Interpretation Directorate, Customs and Trade Administration Branch, Department of National Revenue): Thank you, Mr. Chairman.

I thought I'd begin with a little bit of background on the tariff classification as we've interpreted it. Revenue Canada has consistently classified butteroil-sugar blends under tariff item 2106.90.95. Classification under this tariff item is not subject to the application of a tariff rate quota. We have had representations to the department that the blends in question should be classified under tariff items 0404.90.10, 0404.90.20, and 2106.90.33 or 2106.90.34, which would make the blends subjects to tariff rate quotas.

Just by way of further background, an item subject to a tariff rate quota is subject to a nominal duty rate for a specified volume of imports. Once the specified quota is reached, the goods are then subject to duty rates of 277.5% but not less than $3.24 per kilogram, or 218.0% but not less than $2.17 per kilogram.

As you may be aware, the matter of importations of such blends has now been before the CITT on two separate occasions. The first occasion was to address the broad question of the economic impacts of such importations, and the second matter before the tribunal was to seek the CITT's opinion on the tariff classification of the goods.

The first inquiry resulted in a number of options that could be addressed to deal with such imports. Among those options was a suggested reference to the Canadian International Trade Tribunal on the specific question of the tariff classification.

That did happen on August 10, 1998. The Deputy Minister of National Revenue referred the matter to the CITT and asked them to undertake an objective third-party review and offer its opinion on the tariff classification of the butteroil blends at issue. This review offered dairy producers, along with all other interested parties, an opportunity to present their case on the tariff classification of the butteroil blends before an independent quasi-judicial body.

The CITT did issue its decision on March 26, 1999, on the tariff classification of butteroil blends. In its decision, the CITT concluded that the butteroil blends were most appropriately classified under 2106.90.95, in essence, as “Other preparations, containing in the dry state, over 10% by weight of milk solids, but less than 50% by weight of dairy content”.

At the moment the decision confirms the long-standing departmental policy and interpretation surrounding the importation of such blended products.

• 0910

We in Revenue Canada have reviewed the CITT decision, in consultation with other government departments, specifically the Department of Finance, Agriculture and Agri-Food Canada, and Foreign Affairs and International Trade. Based on the CITT decision and its confirmation of our policy, Revenue Canada will continue to classify the blend products in question under tariff item 2106.90.95, which is not subject to a TRQ, which I mentioned earlier.

As to specific impacts, the CITT decision is subject to appeal to the Federal Court of Appeal by any party that considers that there has been an error in law, or an error made on a point of law. This appeal must be launched within 90 days of the CITT decision. If the question is appealed to the Federal Court, Revenue Canada will respond to the appeal and explain its position as to the current classification rationale, much as it did before the Canadian International Trade Tribunal.

I should point out that as with other similar cases, we in Revenue Canada will continue to monitor importations of such products, especially now in view of the recent decision by the CITT.

Mr. Chairman, I and Phil McLester are at your convenience to answer any questions, or further questions, you may have.

The Chairman: Thank you, Mr. Jordan. Thank you for that.

I think what we'll do is go to Mr. Core of the Dairy Farmers, hear what he has to say, and then we'll have rounds of questions for both groups.

Mr. Core.

Mr. John Core (Chair, Dairy Farmers of Canada): Thanks very much, Mr. Chairman. I'll read the document we've circulated to all of you.

On behalf of the Dairy Farmers of Canada, the national organization representing the political and promotional interests of Canada's 23,000 milk producers, I'd like to thank the committee for its invitation to discuss the issue of butteroil blends and the recent CITT report.

First of all, here is some background. The butteroil blend at the heart of this issue is butteroil mixed with ordinary granular sugar in the proportions of 49% to 51%. This product is being used by Canadian ice cream manufacturers as an ingredient in their products and is therefore displacing domestic butterfat. The case also dealt with mixtures of butteroil and glucose that can be used in the manufacture of processed cheese.

Due to the interpretation of Canada's tariff schedule by Revenue Canada Customs and their classification of the blend under Canada's customs tariff, the blends have been imported into Canada tariff-free and without any quantitative limitations since the early 1990s. Our pleas for immediate and decisive action by the federal government to stop the import of these blends were for the most part ignored. The issue was instead referred to the Canadian International Trade Tribunal.

Hearings on the issue took place in April 1998. The report from those hearings failed to provide a solution to the problem. Instead, it provided a list of options. DFC's preferred option, that the federal government immediately reclassify the blends, was not one of the options listed. Upon reading the report, it was clear that the only legal option that could resolve the question of proper classification was an appeal to the tribunal.

Dairy Farmers of Canada requested that the federal government, specifically the Deputy Minister of Revenue Canada, refer the issue to the CITT, this time asking the tribunal to provide an opinion as to the appropriate classification of butteroil blends. In August 1998 the CITT was asked by the Deputy Minister of Revenue Canada for Customs to provide their opinion as to whether the blends have been correctly classified for customs purposes.

It has been the opinion of Dairy Farmers of Canada that the instances in which the butteroil-sugar blends are being used in ice cream manufacturing mirror the instances in which butter had formerly been used by these processors in ice cream manufacturing. Our argument before the CITT has therefore been that the blends are currently incorrectly classified and would be more properly classified under another tariff line, as food preparations suitable for use as butter substitutes.

The CITT panel of three members was divided on their decision in this issue. The majority upheld Revenue Canada Customs' classification of the blends. The third panel member—and I emphasize that—gave a minority decision in which she agreed that the tariff line that DFC had advocated was the correct tariff line. So it ended up two to one.

Impact: The imported butteroil blends continue to have a negative impact on the Canadian economy. In 1997, 8.6 million kilograms of the blend were imported into Canada, about 6.4 times the levels we first noticed in 1995. In 1998 that number declined somewhat, to about 6.58 million kilograms.

• 0915

Taking 1997 as an example, Canadian dairy farmers' revenue forgone for that year depended in large part on whether they exported the surplus butterfat or simply reduced their production of milk. The CITT quoted the range of lost revenue as being anywhere from $12.8 million to $30.9 million. The imported butterfat from the blends in 1997 amounted to roughly 2% of farmers' production quotas for that year.

Evidence presented at the CITT indicated that any savings enjoyed by ice cream processors have not been passed on to consumers. In fact, an informal study of A.C. Neilsen price data suggests that prices for economy-brand ice cream—and that's the type of ice cream that will most likely utilize these blends—rose by more than 10% between 1995 and 1997, as compared to premium ice creams, those types of ice creams most likely to utilize Canadian cream, which remained stable over that period.

At the April 1998 inquiry, processors assured the CITT that the blends had the absolute maximum potential to displace 25% of the butterfat used in ice cream and processed cheese production in Canada. DFC will be closely monitoring imports of these blends in order to determine whether or not assertions made by the ice cream manufacturers at the CITT hearings that the blends have only limited potential for impact on the Canadian market prove to be correct.

I would now like to briefly turn to Revenue Canada's role in this issue. Many dairy blends have historically been subject to the provisions of the Export and Import Permits Act. Canada's ability to limit imports of products specifically designed to circumvent its border measures has been tested. Throughout the period of the Uruguay Round, Canada continued to experience problems with designer products. They were contrived specifically to circumvent dairy import controls. As a consequence, in the process of implementing the WTO Agreement on Agriculture in 1995, Canada's import regime was changed in order to address this issue.

The Canadian government's description of the process of conversion to the current system was described in some length during the dairy NAFTA panel. In that panel, the government indicated that in the case of many blends, where there was some ambiguity as to whether or not they were covered by Canada's import controls, Canada established certain tariff lines as residual categories in order to cover products that were not well specified, including many dairy blends such as cream and skim milk powder.

At the CITT hearing, Canada's negotiator indicated that he'd not considered the particular butteroil-sugar blend at issue, because Revenue Canada had not informed him that this blend was in fact being imported at the time. The presiding member of the CITT asked this question to Mr. Gifford:

I know that it takes a little bit of time for us to catch up with history, but we now know that there were imports of these blends as early as 1992, 1993, 1994, and in 1993 and 1994, reasonable quantities, if I can use a broad term. Why was it that nobody knew about them?

To this question, Mr. Gifford replied:

I can only speculate, Mr. Chairman, that some tariff classification officer in National Revenue had provided an opinion, so I now understand back, pre-1994, on the appropriate tariff classification of this particular product, but the officials from National Revenue who were on the interdepartmental team, from Finance, Foreign Affairs and Trade, National Revenue and ourselves in Agriculture, basically were the interdepartmental team that looked at the whole question of appropriate tariff descriptions. I can only hazard a guess that at that time the officials from National Revenue were not aware of their colleagues' classification opinion, because it was not identified as a problem, that product was simply not identified back in the spring of 1994 as a problem.

Dairy Farmers of Canada was clearly dismayed to find that Revenue Canada's team, which was the only one in the position to know these blends were being imported into Canada, neglected to give negotiators the critical information they needed to adequately address the serious matter of blends designed to circumvent Canada's border measures. DFC would hope that during the next round of negotiations, adequate safeguards will be put in place to ensure there is no reoccurrence of this failure by Revenue Canada to provide complete information to Canada's negotiating team.

Dairy Farmers of Canada regrets that Canadian officials—in particular, representatives of Revenue Canada—failed to adequately consider mechanisms that would ensure that all designer products were captured by Canada's border measures.

• 0920

Dairy Farmers of Canada will be closely monitoring imports of the butteroil-sugar blend at issue in order to ascertain whether processor assertions are correct that this blend has only limited potential for use in Canada due to quality considerations.

DFC has read the CITT report. It should be noted that the decision not to consider this blend as a butter substitute was a split decision. At least one tribunal member found merits in DFC's arguments that this product should be considered a butter substitute. DFC has also identified a number of flaws in the majority decision. Dairy Farmers of Canada is seriously considering an appeal of the CITT decision to the Federal Court.

I will be pleased to answer any questions you may have. Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Core.

That's exactly what we'll do now. We'll go to the first round of questions, and as usual, we'll start with Mr. Hilstrom for seven minutes.

Mr. Howard Hilstrom (Selkirk—Interlake, Ref.): Thank you, Mr. Chairman.

Welcome, everyone.

This butteroil issue has been boiling around now for a few years, and it certainly seems that the industry itself didn't seem to know too much about it happening back in 1992 and 1993. But this smacks a little bit of the possibility of some political interference in this decision-making process.

In the decision, in the official hearings, were there official presentations made to you in regard to how the classification of this butteroil should have been done? Were there presentations made by the industry and other people, or did you just get written submissions?

Mr. Mike Jordan: We've had written submissions from a number of groups on both sides of the issue.

Mr. Howard Hilstrom: Okay. On your files, do you have correspondence from the minister, Herb Dhaliwal—or who was the minister at the time this decision was made? Was it our current revenue minister?

Mr. Mike Jordan: It started with our previous minister, Minister Stewart, and it continued under Minister Dhaliwal.

Mr. Howard Hilstrom: Were there meetings held between the directors at the time? Were you two fellows the director and acting director at the time these hearings started?

Mr. Mike Jordan: I was not the director general at the time, and I don't believe Phil was acting director at that time.

Mr. Howard Hilstrom: Do you have any record, such as notes on file, of any meetings with the minister specifically in regard to this issue?

Mr. Phil McLester (Acting Director, Tariff Classification and International Nomemclature, Customs and Trade Administration Branch, Department of National Revenue): We do. I was in attendance at a meeting with Mr. Dahliwahl—I believe Mr. Core was also there—and we made essentially cursory notes of the high-level economic considerations mentioned by the minister.

Mr. Howard Hilstrom: Was there a question of trade in this too? We see other countries wanting to open up our dairy industry—imports and that sort of thing. Was that part of the decision-making process too, that if we somehow classified this to prevent its importation or had the high tariffs on it that would then reduce the amount that came in, or eliminated it...? Were there also trade considerations in the decision-making?

Mr. Phil McLester: Certainly with respect to our overall considerations of the classification question, we consulted with other departments, including Foreign Affairs, Agriculture, and Finance. We were aware—and I think signalled this to them—and were notified that the market supply system could potentially be negatively impacted if we were to change our interpretation of this classification in mid-route. But the fact is that prior to the WTO adoption in 1995, these goods were not subject to permit; therefore afterward, when being classified, they were classified under an item that was not subject to TRQ, which was the substitute system for permits under tariffication.

Mr. Howard Hilstrom: What's driving dairy farmers crazy, I guess, is the fact that no matter whether it's 49% or whatever, it still brings in a volume of dairy production. And it would seem pretty reasonable to me that in fact it should be subject to the same import tariffs as for other dairy products, but that's not the case with this one just because it was left out of the trade agreement. Is that what really happened, that the descriptor wasn't put into the agreement we signed in 1993?

• 0925

Mr. Phil McLester: It was signed In 1995. It really is a question of tariff classification, as well understood by the Dairy Farmers of Canada. Obviously, they've pursued that classification issue considerably.

But if the goods are classified in an item that isn't subject to TRQ and we consider this to be the case, we in Revenue Canada don't consider any political aspects as to whether they should or should not be subject to permit or tariff rate quota, which is the higher rate. That's not a consideration. We classify the goods as we see them as they're imported.

Just to clarify that point, there have been a number of discussions at the World Customs Organization, and those discussions have covered the subject of manipulation of product compositions to try to get around various duties and in this case our TRQs. The World Customs Organization has indicated that goods must be classified as they're imported and that even though people may change compositions, which is not uncommon, you have to use other internal means to deal with anything you perceive as manipulative fraud or this type of thing. So from Revenue Canada's perspective, we're simply required to classify the goods as imported where they appear to be indicated by the explanatory notes and the classification opinions of the World Customs Organization.

Mr. Howard Hilstrom: What's your recommendation to the government as to a position to take going into the next round of trade talks? Do you have a recommendation to the government on this at all?

Mr. Phil McLester: From Revenue Canada's perspective, we've already been involved in interdepartmental talks with regard to the next round of trade negotiations. We probably have several recommendations, but I think the most important one is that during this round of negotiations we should make sure that we know where goods are classified prior to going back and forth with other countries. At the end of this year we'll be providing, I assume, a list of various items of interest from Canada's perspective to the World Trade Organization. Revenue Canada has asked to be brought on board in the beginning, especially in the very important negotiations on agriculture, because if we know what we're classifying and know what we're talking about, then any agreement relating to those will be correct.

Mr. Mike Jordan: Our position generally in support of all negotiations is as the administrative department. We essentially provide the technical expertise. As Phil said, we will provide information from a technical point of view in terms of the commodities, their classification, and where they're currently classified. So our expertise would be in terms of supporting the negotiations through the provision of administrative expertise as we see it.

Mr. Howard Hilstrom: The more the better.

The Chairman: Thank you very much.

We'll now turn to Madam Alarie for seven minutes.

[Translation]

Ms. Hélène Alarie (Louis-Hébert): My first question is in regards to the Canadian International Trade Tribunal. Butteroil blends have been a popular topic of discussion during Question Period, just as they have been here in committee. Much was expected of the July 1998 decision or recommendation.

The Canadian International Trade Tribunal is an administrative tribunal. Does its mandate allow it to make recommendations or issue opinions, or must it confine itself to issuing decisions?

Mr. Mike Jordan: I didn't understand the question.

Ms. Hélène Alarie: Generally speaking, an administrative tribunal issues decisions which reflect its position. That's what it did the last time around. Does the CITT's mandate allow it to make recommendations and issue opinions?

Mr. Mike Jordan: That's precisely what happened the first time. The matter of the importation of butteroil blends was brought before the CITT on two occasions. As I indicated, the first time, it was to address the economic impacts of such importations. The matter was put forward by three departments, namely Agriculture, Finance and Foreign Affairs and International Trade.

• 0930

Ms. Hélène Alarie: According to the information we have, why then, when your deputy minister brought the matter to the CITT a second time for an opinion, it chose to respond by issuing a decision? This sets a precedent. The CITT made several recommendations in July 1998. Based on the information we have, your deputy minister apparently went back a second time to the CITT for an opinion, but the latter ultimately chose to issue a decision, which is legally binding. Why did it opt for this course of action?

Mr. Mike Jordan: That's the first question the CITT was asked, namely whether it would be issuing an opinion or a decision. After hearing from both parties, it opted for a binding decision.

In any event, opinions and decisions are both subject to appeal to the Federal Court, pursuant to section 70 of the legislation.

Ms. Hélène Alarie: I haven't scrutinized the legislation closely, but as I understand it, an opinion is not legally binding. When a party perceives that errors have been made on a point of law, it has 90 days to appeal. However, there has to be good reason for proceeding with the appeal.

Mr. Mike Jordan: That's right.

Ms. Hélène Alarie: When an opinion is issued, the legal framework isn't quite as rigid.

Mr. Mike Jordan: Correct. With an opinion, all of the facts can be considered.

Ms. Hélène Alarie: And the whole process can start over again?

Mr. Mike Jordan: Yes, but even so, if a party wishes to appeal the opinion, it must follow the procedure set out in the legislation. Opinions and decisions can both be appealed to the Federal Court.

Ms. Hélène Alarie: Expectations surrounding the July 3, 1998 report were high. We were hoping that it would set out some options for resolving the situation.

After your deputy minister requested an opinion, the CITT went ahead and issued a majority binding decision that can only be appealed on points of law. There is limited room to manoeuvre. If the decision cannot be appealed, then this matter cannot be heard again. In my view, this doesn't leave us many options. In truth, what your deputy minister really wanted from the CITT was an opinion, not a binding decision.

Mr. Mike Jordan: As I said, questions arose as to whether the CITT should issue an opinion or a decision. Ultimately the CITT chose to issue a binding decision regarding the tariff classification.

Ms. Hélène Alarie: This is the Agriculture Committee and obviously, we have the interests of farmers at heart. Last year, we welcomed Mike Gifford and he explained to us many things that we have since heard again. At the time, he said he was awaiting the CITT's opinion, that they were unaware of this classification and that therefore, they hadn't taken it seriously. Everything that was said earlier, well, it's already been said before, yet when you compare Agriculture, Foreign Affairs and International Trade and Finance, Agriculture always seems to get its butt kicked around, if you'll pardon the expression. We deal in technical details, without taking into account all of the ramifications. We never seem to make any headway. I find this rather disconcerting, in light of the upcoming WTO negotiations.

From September to December, we listened attentively to all of the witnesses and now, we see that the Foreign Affairs and International Trade committee is hearing from the same people. Why aren't people communicating and exchanging ideas? Repeating the same things over and over doesn't get us anywhere.

I feel the same sense of unease about this particular matter. Mike Gifford informed us that he was unaware of this, that he was awaiting recommendations and that other options were going to be considered. The net is closing in.

• 0935

I have a question for the Dairy Farmers of Canada. You quoted some figures for 1997.

[English]

The Chairman: Make it short, Hélène. You're pretty well out of time.

[Translation]

Ms. Hélène Alarie: I'm sorry. Do you have any projections on the impact for 1998-1999?

[English]

Mr. John Core: We only have very preliminary numbers for 1998. These numbers come out after the fact. But our indication was that it may be returning to a level closer to the eight million kilograms than to the six million kilograms. It's rather difficult to know for sure, because there was a very high price increase in the United States last year that changed the whole market for butterfat for a short period of time. So it's unclear as to what will be the final result for 1998.

[Translation]

Ms. Hélène Alarie: Thank you. And thank you, Mr. Chairman.

[English]

The Chairman: Thank you.

Just before we go to Mr. Steckle, can I just get clarification from Mr. Core on one thing? This issue has been around for a number of years, and I can understand your frustration with the way the Uruguay Round impacted you on this particular issue, and perhaps you felt a little let down. You've tried to settle this administratively, politically, or legally, and you've perhaps become even more frustrated.

Why don't you just settle it in the marketplace? I've always thought of dairy farming in Canada as being a pretty good industry, and you're pretty efficient. Why don't you just leave it to the marketplace? If you guys can do your job properly and competitively, you can probably get the biggest share of the market in so far as this product is concerned.

Mr. John Core: That was certainly, Mr. Chairman, one of the suggestions made before the tribunal by various individuals. But in our view Canada signed a particular deal. We were led to believe and were told very clearly that the deal that was signed would deal with these kinds of blend issues designed to circumvent. I sat at the hearing the day Mr. Gifford testified, and I was shocked to hear him say that someone in Revenue Canada had simply not informed the negotiators that this particular product had been coming in prior to the time Canada's offers and commitments were made. So that surprised me.

Also, I had been assured throughout the process that the classification with the residual process, anything that could come in and be argued as being a butter substitute, would, in fact, be covered under that tariff line. So we were under the assumption that would also cover us off. Now we find that 25% of the ice cream market is being taken up by this circumvention because, in our view, it wasn't properly tariffied.

The Chairman: So why don't you take that market yourself?

Mr. John Core: Canada signed a deal that said we would have a domestic dairy industry that would operate behind those tariff rate quotas and those over-quota levies. If that's not the case, then it totally destroys the government's commitment to us that we were going to be able to operate a domestic supply management program. You can't price 25% of the butterfat in the ice cream market at some world price without having to also price the other 75%, because that's not how the marketplace works. You can't say you can have 25% of your butterfat at this price and, by the way, for the other 75% you have to pay us a higher price. Where does it stop? What about processed cheese? It would just go on and on.

That's not what the government's commitment to us has been. The government's commitment was we will provide you the opportunity to operate a domestic supply management program. The deal was supposed to have provided us with the opportunity to do that. The reason it was negotiated that way is because the playing field in the world dairy industry is extremely distorted by market access issues, domestic subsidy issues, and export subsidy issues. We were told that this agreement would allow us to continue to operate the domestic supply management system. We have to take this to the full extent and pursue these issues, because this is just the beginning of the tip of the balance that would take us into a different market situation. That's not the policy of the government of Canada.

The Chairman: So you're not going to try the marketplace. You're going to continue the course—

Mr. John Core: We're going to continue the course, and we're considering an appeal.

The Chairman: —regardless of where it takes you.

Mr. John Core: It's not regardless of where it takes us. It is the commitment of the government that they were going to provide us with the opportunity to operate a domestic supply management system.

• 0940

If Revenue Canada officials fail to inform the negotiators of this product coming in, it's not our problem; it's the problem of the Government of Canada, whose revenue people failed to inform the negotiators that this product was coming into Canada.

The Chairman: Sorry to hold you up, Paul.

Rose-Marie, I have your name on first, but....

Mrs. Rose-Marie Ur (Lambton—Kent—Middlesex, Lib.): Me? Go ahead.

The Chairman: Whatever.

Go ahead, Paul. Age before beauty.

Mr. Paul Steckle (Huron—Bruce, Lib.): What has been revealing to me this morning, as John just mentioned, is that prior to 1994-95, leading up to when the negotiations were signed in 1995, there was information available—which was not given to the parties present at the time the negotiations were finalized—that indeed there was such a product and that this product was indeed coming into Canada and there was circumvention of certain rules.

Was Richard Doyle aware of that information? I don't care who answers the question—maybe John.

Mr. John Core: My understanding is that Richard was on the committee Mr. Gifford refers to, because industry people were there. In talking to Richard, he says the only way they would have known is if they had been informed by Revenue Canada that the product was coming in. He had no access to the information that was privy to Revenue Canada. I think Mike's testimony indicates that none on the committee received that information from Revenue Canada.

Mr. Paul Steckle: Do you want to respond?

Mr. Phil McLester: I wonder if I might respond to that aspect of the negotiations on Revenue Canada's part. I recall the now-famous remarks of Mr. Gifford on Revenue Canada's role. I think the CITT did indicate that the reason this hadn't come up is that it wasn't brought up during the negotiations. What Revenue Canada does, and did throughout the negotiations, is indicate the classification of various products that are subject to permit, and these products were mentioned.

I should point out that there are thousands of other products that aren't subject to permit. These are products with small amounts of dairy added, and other products that didn't come under permit prior to the negotiations.

That being the case, Revenue Canada did not supply an exhaustive list of every possible good under the sun that isn't subject to permit. There are thousands and thousands of these goods. What Revenue Canada did was respond with the exact classification of goods that were asked of them by the Department of Foreign Affairs, by the dairy farmers, or any other organizations subject to those negotiations, in this particular case.

When we received requests for importation prior to conclusion of the negotiations, we immediately suggested that those importers might want to get what we call a “national customs ruling.” That, of course, would force our hand to go to the Department of Foreign Affairs to find out if these goods were subject to permit, which we did. Foreign Affairs indicated that these goods were not subject to permit, and they were classified under an item and allowed to be imported.

So it wasn't something Revenue Canada was aware of and no one else knew. These goods were in the open marketplace. They were being imported. It was requested of the Department of Foreign Affairs whether permits were required on them. Although I wouldn't want to speak entirely for the Department of Foreign Affairs, I do know that at that time, one of the criteria used by Foreign Affairs was a 50% cut-off line on dairy content. In this case, there was 51% sugar. In my estimation, that would be the reason they considered these goods not subject to permit and therefore of no interest to the negotiations—unless, of course, you wanted to grab more goods that weren't covered by permit and bring them into the negotiations.

Had someone requested the classification of these goods, Revenue Canada would have responded immediately as to where they were classified. But as indicated by the CITT, no interest was expressed at that time.

Mr. Paul Steckle: Going into the next round, as we're now on the eve of another round of negotiations, are you prepared to recognize it for what it is believed to be by National Revenue, or by two members of the panel, or are we going to recognize butteroils as being what one member of the panel believed it was?

Where are we going to be, going into the next round? How might we resolve this problem? Are we going to continue this kind of thing going into the next round and beyond? I think that's where we're at now. Obviously there's a lot of water under the bridge since we first negotiated, but having the ability in hindsight to know, how are we going to treat this issue going into the next round?

• 0945

Mr. Mike Jordan: We have the majority decision of the Canadian International Trade Tribunal and we have a number of cases where we have majority decisions and minority decisions, so basically we are guided by the majority decision of the CITT pending any further appeal to the Federal Court and jurisprudence from the Federal Court as to what the decision should be.

So basically we have that opinion of the CITT and will apply that decision as binding on us until there is a decision from the Federal Court—if the matter is appealed to the Federal Court.

Mr. Phil McLester: I would indicate as well that tariffication, which was the system of converting from a permit system and which was considered to be a non-tariff barrier, occurred during the discussions and the various negotiations on products.

I'm being hypothetical, but had Canada decided to make these goods subject to TRQ, our trading partners could have immediately looked at imports they had made and then put an appeal to the World Trade Organization. And based on importations that Revenue Canada was indeed allowing, based on the advice of the Department of Foreign Affairs, we would have lost the case. And we face that same possibility in the future.

Mr. Paul Steckle: I'm going to put that question to you, John, as well. How do you anticipate us resolving this issue going into the next round? How would you like to see it resolved? Do you believe it can be resolved?

Mr. John Core: That's the difficulty with this decision on classification as it stands. I don't believe a specific tariff line classification can be addressed through a WTO discussion. That's the problem. I think it's a domestic issue, quite frankly.

As I said, we're considering an appeal to the Federal Court. Yes, there was a majority and a minority decision, which I encourage you to read. I'm just a layman in these issues, but the minority decision simply made sense to me as a lay person when I read it. The majority decision was based on precedents and many other legal arguments and classifications and so on. I just go back to the fundamental issue: this butteroil-sugar is designed for only one purpose, which is to circumvent the restrictions we have to operate a domestic supply management system. And it substitutes for butter in many of the recipes for ice cream.

I can think of one meeting I had with a senior person in Revenue Canada where I was lectured about the fact that Canada was heading into a free-trading nation situation and the dairy industry had better get onside. I reminded that person that this policy of the Government of Canada was to operate a domestic supply management system.

My concern is that Revenue Canada doesn't take the type of attitude at border customs that our other trading nations do. If this product arrives at the border of the United States, very limited quantities of it are allowed in for various tariff reasons. But we always seem to go the free way: that is, let's not apply the same strength of control at our border that other countries do. That's my ongoing concern.

I just want somebody in Revenue Canada to tell me that they fully completely support the policy of the Government of Canada's supply management and they will aggressively impose a tariff classification at the border, as aggressively as any other country.

The Chairman: Thank you, John.

Mr. Proctor, five minutes.

Mr. Dick Proctor (Palliser, NDP): I think a good beginning point would be to ask the folks from Revenue Canada to respond to what Mr. Core has just said on that point.

Mr. Phil McLester: Thank you.

Indeed, I think it's quite clear that Revenue Canada officials are very sensitive to this particular issue. While we are required to administer the legislation as it is written and we can't bend the law, there are a number of issues. I have to admit that I think Revenue Canada bends way over backward to ensure that prior to allowing a national customs ruling through on dairy products, that ruling is beyond black and white, in the sense that we try very hard and we always have kept in mind the sensitivities of Canadian industry.

Of course, on this particular issue we're even more sensitive because of what's going on. I can say for a fact that Anna Doucet, a former manager—I think someone Mr. Core is quite familiar with—had called the dairy farmers and a number of organizations every time we received a ruling or a request for a ruling to find out how those products were classified, any information we could get. We added that sensitivity to our decision. But again, we are bound by the legislation, and if the legislation is somewhat black and white, then it's the legislation that must rule. We're an administrative department, and that's our job.

• 0950

Mr. Mike Jordan: I'd like to underscore that, because essentially we must administer the legislation. We have to administer the legislation. In this particular case, we've reviewed it on a number of occasions. We've had very detailed.... We give our rationale out. We itemize our rationale so that people, if they argue with it or if we've missed something, can come back to this. When we issue these national customs rulings, as Phil says, we obtain information from a number of people from both sides. We have both sides of the issue to manage. So we have to administer the legislation as it is written.

We give a complete rationale as to why we think that way. It's right out there and we issue that. And the redress system is there. We have the redress system. We can go to the CITT, the Federal Court, and in fact the Supreme Court of Canada, but we have to be able to defend our position. And that rationale we gave at the ruling stage we carried before the CITT. We've been quite transparent in terms of how the legislation reads and how it should be interpreted. And we have to be. We have to be very transparent, very open, and we have no reason to be otherwise, because that is our position; that's the way we read the legislation. And as we did before the CITT, we have to defend that position with a rationale, with logic, with information before us.

Mr. Dick Proctor: As I understand it, you were hoping for an opinion and you got a ruling instead. What are the implications of that? None?

Mr. Mike Jordan: The decision and the opinion.... At the outset an opinion, as I responded earlier, is an opinion to the deputy minister, which the deputy minister would consider.

Having said that, both of them are appealable to the Federal Court by any party. So even the opinion itself could be appealed. And when you get up the channels—and it's in the legislation quite clearly—an opinion is subject to the appeal route. So I guess in essence, whether it's an opinion or a decision, it could go to the Federal Court and the Federal Court could pronounce on it. And as it gets up through the judicial system, the argumentation becomes a lot more precise and the jurisprudence becomes a lot more precise.

So I think in the final analysis, whether it's an opinion or a decision, we're going to be there.

Mr. Dick Proctor: Okay.

The Chairman: I'm trying to remember, do we go to you, or do we go the other way? We normally go to you, don't we?

Mr. Rick Borotsik (Brandon—Souris, PC): I'm after Dick.

The Chairman: My mind is fuzzy. Go ahead, Mr. Borotsik. Five minutes.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

Mr. Core, the decision states quite specifically with respect to the blend:

...it is used not as a butter substitute but rather as a source of milk fat. For these reasons, the Tribunal is of the view that the blend is not suitable for use as a butter substitute.

You had said earlier that in fact in your opinion it is without question a butter substitute. Would you confirm that?

Mr. John Core: Yes.

Mr. Rick Borotsik: Fine. The reason I asked that question is you also said earlier that the DFC is considering an appeal. You didn't say whether you would or would not at this point in time. You have 90 days to file that appeal as the DFC. With such a strong opinion by the DFC that it is in fact butter and it's not used as a substitute, why would you not make that decision to appeal at this point in time?

Mr. John Core: I think you're given 90 days to make that decision, and our lawyers are reviewing the information on the basis of which they would suggest to us that we do appeal. I think we will be pursuing an appeal; we just have not yet made that decision yet.

Mr. Rick Borotsik: You think you will be. We know you're pursuing the possibility, you just have not decided whether to appeal. That's where I have some difficulty.

You're very strong on this issue. You had mentioned to the chairman that this may well be the thin edge of the wedge, should you have to compete with imports coming in, with this non-butter substitute, that it could quite well impact the whole supply-managed system. I have some difficulty. If that's in fact the case in your opinion, why the hesitation to state at this point in time that the DFC will be appealing the tribunal decision?

Mr. John Core: It's just because we've not yet received all the information from our lawyers and we're not in a position to do it yet.

Mr. Rick Borotsik: Mr. Core, can you tell me what the differential in price is? The reason I ask this is I noticed on the data provided that in 1997 there was a huge spike in November, with some huge volumes, 8.24 compared to 1.17 before. There was a huge spike there with imports coming in. The 1998 volumes have fallen below the 1997 volumes basically because of that spike. Can you give me some information as to why that spike was there, why some huge volumes were coming in in the November-December market, and what the price differential is?

• 0955

Mr. John Core: As far as the linear depiction of the imports is concerned, we don't get the information on a monthly basis. So the fact that it jumps very quickly may have in fact been a more gradual increase, but the data itself takes a jump in the graph.

Mr. Rick Borotsik: Okay.

Mr. John Core: So we think it was probably gradually increasing over that period of time.

Mr. Rick Borotsik: Okay, so 1998 volumes have dropped below 1997. Is that because the differential has closed?

Mr. John Core: I think what happened to a large extent is that the price of butterfat rose dramatically in the United States, and those countries that were exporting butterfat to Canada may have found a better price opportunity in the United States in other forms.

Mr. Rick Borotsik: Is that in fact the case now as well, in 1999?

Mr. John Core: No, in 1999 the price of butterfat has dropped dramatically in the United States, and that's why.... We don't have current data for 1999.

Mr. Rick Borotsik: Can you give me some estimate as to what the price differential would be between Canadian supply-managed butteroil, as opposed to the imports?

Mr. John Core: We didn't have specific information, I don't believe, on the exact amount. As with all imported products, it's almost impossible to determine what the price is to the ice cream manufacturer.

All that has to be done is price below the Canadian market and it will in fact do that.

Mr. Rick Borotsik: I go back to the—

Mr. John Core: But the tribunal estimated that the difference in price probably resulted in a savings of $1.05 a kilogram for ice cream. Those are the tribunal's calculations.

Mr. Rick Borotsik: And can you translate that into what the price differential would be between yours and the import? I know it's $1.05 per kilogram.

Mr. John Core: A kilogram of butterfat in Canada is in the neighbourhood of $5.50 to $6, in that range. And this was suggesting, as I understand it, that $1.05 a kilogram, I'm not sure whether this is—

Mr. Rick Borotsik: So you're looking at a 20% differential, then, basically. Is that where I'm going? Is that what I hear?

Mr. John Core: Possibly.

Mr. Rick Borotsik: Then I go back to the chairman's comment. That 20% differential is too much for the supply-managed system to compete with.

Mr. John Core: No. You have to understand that any imported product is priced just low enough to attract the market in Canada. If in fact you start chasing that number—

Mr. Rick Borotsik: It goes lower.

Mr. John Core: —the number will go lower. Nobody's going to import something in and then sell it dramatically below the Canadian price, but just low enough that it takes the market.

Mr. Rick Borotsik: So it may have been pennies.

Mr. John Core: You're going to be chasing some—

Mr. Rick Borotsik: And that, in your opinion, is the thin edge of the wedge, if you start chasing it.

Mr. John Core: It's that. But the second point is that if you sell butterfat into the domestic market, there's no way you can sell 20% of it or 25% of it at a lower price. You set a new domestic price. So you start chasing your whole domestic market for butterfat, because butterfat domestically is priced at the same price for all classes—ice cream, cheese—of milk in Canada. So you're putting at risk your entire market for butterfat.

Mr. Rick Borotsik: The processors have a part to play in this as well, obviously. And it seems that the DFC and perhaps the processors have differing opinions with respect to supply. Has your organization talked to the processors? I expect they have. Have they talked to the processors with respect to this butteroil mix, butteroil-sugar blend? I take it that their opinion has been that they will continue to purchase as long as it falls within the tariff classification.

Mr. John Core: That's my understanding in my discussions with them, in their view of this product as being offered to them and they will continue to buy it if it's available to them.

The Chairman: Thank you. Welcome to the marketplace.

Mr. Bonwick.

Mr. Paul Bonwick (Simcoe—Grey, Lib.): Good morning, John, and gentlemen.

There are a few issues I want to talk about specifically, and I would ask you to take a couple of notes and then maybe you can address them at the end as I go through.

You've raised some issues on some of the things you would like to see this committee do or this government do with regard to ensuring that the right questions are being asked in the upcoming negotiations. I'm fairly confident in stating that certainly the members on this side are wanting to ensure that dairy farmers are represented in a very strong way. So if you could provide us a brief point list of what some of the questions are you think should be answered—rather than 15 or 20 pages, just a series of points where you think we should be ensuring that these questions are being asked, whether of Revenue Canada, the Department of Finance, the Department of Agriculture, whoever—certainly we'll ensure that those questions are addressed and the appropriate responses are forthcoming for the negotiatiors themselves.

• 1000

With regard to some of the presentations from some of my colleagues so far, Mr. Hilstrom, from the Reform, had raised an issue with regard to political interference, or possible political interference. That was something that raised an issue in my mind and certainly something I think DFC should be made aware of. It is set aside from the issue of the butteroil-sugar blend but certainly impacts it in a much broader scale. The political interference I speak of I think can drastically impact dairy farmers right across the country.

As you may be aware, recently we travelled to Washington to meet with our peers in the Congress and Senate, as well as senior trade negotiators to the United States. I should preface that by saying that these types of exchanges are incredibly positive, or have an opportunity to be incredibly positive, because they provide a vehicle for the two political bodies to directly convey what they're in support of, what they're prepared to move on, and what they're not prepared to move on.

It was in this regard that certainly the Liberal members of the committee took full advantage of that in establishing an unwavering or unflinching commitment to a supply management philosophy within our domestic dairy market. It was very clear and very strong. The political interference—and certainly your members should be aware of it—was that on an ongoing basis with almost all the groups we met with, including the trade negotiators, Reform constantly threw the supply management out on the table. This put us in somewhat of a quandary, because we weren't singing from one song sheet as a Canadian committee; rather, we were airing the domestic policies and domestic agreements not within ourselves, but publicly. When we talk about political interference, it's certainly something you should be aware of.

When you talk about the appeal process itself, the appeal process obviously would have to be based on the merits of inconsistencies with regard to rule of law, I would assume. So when you are establishing whether there's the necessary information to provide adequate support to legitimize whether the rule of law was followed, have you got anything back from the lawyers to suggest that rule of law itself wasn't followed? That's a second question. The first one was whether you can provide the briefs.

And lastly, where do we go from here? How else can we ensure...? There are several things on which John and I don't agree, but in this one instance, I do agree that this is, from my perspective, a wedge. It has potentially far-reaching implications. Unless we make sure we have this thing addressed in a very comprehensive manner to ensure there's not circumvention in other areas.... Because from my perspective it was an oversight, if anything else. Whether it was a lack of communication or whatever the case may be, it was an oversight in not dealing with the issue.

The Chairman: You're almost out of time. You're either going to give him some time to answer or you're not.

Mr. Paul Bonwick: I'll give him time to answer.

The Chairman: You have about one minute, Mr. Core.

Mr. John Core: Okay. The first question is what questions do we want to ask next time.

I think the key thing we want to emphasize is next time we want to make sure that at a departmental level we make sure all of the information comes to the table so that our negotiators have this information on whatever the issues are we're negotiating. Full cooperation among all the departments is the key thing, with everyone understanding what the goal of the negotiator is and what position the Government of Canada has instructed the negotiator to take. So that's the first thing we ask, because we think it's where this process broke down the last time.

As far as what was the specific rule, yes, we agree that we understand an appeal to the Federal Court is as you outlined it. All I can tell you at this point is there was evidence expressed in the minority decision that was not even dealt with by the majority decision within the tribunal. Our lawyers are looking at that issue and other legal issues, but again I'm not in a position to reflect what those are currently.

In terms of your comment about supply management, I want to emphasize once again to the committee that supply management is a domestic issue. It's a decision of us to operate domestically supply management. The rules of trade deal with international movement of goods and so on. So it's not an issue for the Americans to be worried about our supply management. They operate their own domestic dairy policy, as do the Europeans. Those are domestic issues.

• 1005

What we'll be looking for are rules in the next WTO round that apply to everyone, that level the playing field, give true market access, remove export subsidies, and cap domestic support. Those are the key things we'll be looking at.

The Chairman: Mr. Hoeppner.

Mr. Jake E. Hoeppner (Portage—Lisgar, Ref.): Thank you, Mr. Chairman.

I want to follow up on what Mr. Bonwick said. You know I always like his comments.

I think we're sitting here today and really watching politics in progress, and what can happen to an industry when they strictly pay attention to politics.

In 1993, when I ran for Reform the first time, I remember very distinctly that the Conservatives and the Liberals said article 11 is safe, let's protect it; there's no way we're going to go to TRQs. I had dairy farmers come to me during that election and show me a letter from the Dairy Farmers of Canada that said “Vote anything but Reform”. Well, we told you people at that time the TRQs were on the table and we would not be able to preserve article 11. It's become true. So there was no preparation to counteract that.

I don't want to blame the finance people for it, because I think everybody was under the belief that article 11 was safe and this butteroil situation wasn't important enough to look at. That's my assessment of this. I think this is where politics just fell down completely. They wanted to get votes—article 11 is safe. None of the other issues were looked at. Now we're suffering for it. Am I correct, or am I incorrect?

Mr. John Core: You're correct that article 11 was not part of the final deal. But what was part of the final deal was a TRQ and a tariff regime that was put in place by the negotiation process and by the offers. That was put in place. I'm not going to argue about what happened in the past. The reality is that today that's what we have.

Mr. Jake Hoeppner: That's what we've got to deal with.

Mr. John Core: We understood that these issues of these specialty design blends would be dealt with in the offer Canada made. The committee that was in place asked for the information, as I understood it. Not all products were specifically covered, but there was a catch-all category created where there were butter substitutes that came in that would fall into it. I mean, this is 49 and 51. This is not 45-55; it's not 51-50. It's 49-51, specifically designed for a specific purpose. That's the issue. I mean, if those products were coming in, they should have been...the committee would have been notified. They would have been on the list, clearly defined, and that would have been the end of it. But other than that, we expected them to fall into the category as butter substitutes.

Mr. Jake Hoeppner: Well, I also want to remind Mr. Bonwick that if he looks at the Reform policy, it says very clearly that farmers should have the right to structure their marketing agency the way they believe is best.

I think you were sideswiped. You were not given the proper information, or you would have looked at this issue. I'm sure people knew this butteroil was coming in some form at that time.

Mr. John Core: Everyone I've asked on our side was not privy to that information. It was privy to—

Mr. Jake Hoeppner: To government.

Mr. John Core: —to government.

Mr. Jake Hoeppner: Yes, I agree with you. You were sideswiped. Thank you very much.

Howard, you have some time.

Mr. Howard Hilstrom: You have a couple of minutes left.

Mr. Jake Hoeppner: Yes, you have two minutes.

Mr. Howard Hilstrom: Okay, just to finish off on this political spin-doctoring that's being done by the government side here.... I'll tell you, that's exactly what it was. I was going to use the word “bullshit”, but I won't use that.

Mrs. Rose-Marie Ur: Oh, no.

Mr. Howard Hilstrom: When we were on foreign soil travelling with the committee there, we'd been asking the Dairy Farmers of Canada if they feel they can access world markets and at the same time protect domestic supply management. That is a question that has to be answered in the upcoming WTO talks. The Dairy Farmers of Canada have initiated this process of trying to increase exports outside the country. My reason for raising it and the Reform Party's reason for raising it is the question to be answered—can you have it both ways?

I've met with dairy farmers, or at least their representatives, and there's opinion that yes, they can. I've also met with many dairy farmers in my own riding who say they want to ensure domestic supply management is there. They're not so worried about the exports.

• 1010

I wrote a letter to The Western Producer setting out our policies precisely there and clarifying why I was raising that issue of whether you can have it both ways. It's simply to draw out the answers and try to instruct the government on where they should be going with supply management.

My question then is in regard to the processes versus the producers. This gets back to what role the minister and deputy minister had in this whole affair. Had there been just an opinion given, instead of a decision, would that not have allowed the minister to disagree and in fact include butteroils under the tariff?

Mr. Phil McLester: If the two-thirds decision had come out, I would very much suspect—and it's just an opinion—that Revenue Canada would have to follow its previous advice on this item that the goods were classified in an item not subject to TRQ.

I should point out as well that these rules with Revenue Canada.... This is a highly technical subject. These rules are not something Revenue Canada or the Department of Finance invented. They're invented at the World Customs Organization for the classification of certain products. There were a number of classification opinions when the question was between chapter 4 and chapter 21, which indicated the goods were classified in chapter 21. I mean, Canada bases its rules—

Mr. Howard Hilstrom: Ultimately—

The Chairman: I'm not going to allow you any more time. You're way over, Howard. I've already given you two extra minutes.

Mr. Howard Hilstrom: Thank you.

The Chairman: All you're doing is denying these people a chance to respond when you go on and on with your questions.

Mrs. Ur.

Mrs. Rose-Marie Ur: Thank you, Mr. Chair.

Mr. Jordan, time and time again this morning you've made the statement regarding the CITT when they render a decision, whether it's an opinion or a decision—well, so be it, they can take it to the court. That's certainly music to many lawyers' ears. I kind of take exception to that statement. What is their mandate? Is their mandate actually an opinion, or a decision? What are they set up for?

Mr. Mike Jordan: Well, they're set up for both. There are cases that do go to the tribunal on appeal where basically they're asked for a decision on a particular transaction. According to this particular section of the act, section 70, the deputy minister may request an opinion. In either case, as I mentioned before, they're both appealable to the Federal Court. The tribunal is set up for both. Normally cases go there on a dispute with a particular importer or a particular import transaction.

Mrs. Rose-Marie Ur: Well, this went for an opinion, did it not?

Mr. Mike Jordan: It did. The deputy minister asked for an opinion—

Mrs. Rose-Marie Ur: And it came back a decision.

Mr. Mike Jordan: —and it came back as a decision based on argumentation put forward by all the parties. The decision was one of the issues dealt with by the tribunal. For their logic they went through and basically decided that in this case they would offer a specific decision on the goods.

Mrs. Rose-Marie Ur: Yes. I have a real problem with that. If you're asked for one thing and you come down with another, what's going to happen in other cases that come forth? There seems to be a real problem with the process here.

We've had all kinds of consultations with various groups, with the farm commodity groups and everything regarding the upcoming WTO hearings, and they've been really receptive to that. But all that is in vain, I think, if all the departments can't get together and share information as to what's going on within your department or what is happening regarding butteroil and sugar.

So what have we learned? And how are you going to make sure that next time we go to the table issues such as this, this catch-all category...? Mr. McLester was saying there are thousands and thousands of products and there will be more and more coming forth. What are you going to do to ensure that farmers aren't going to land up the way dairy farmers have landed with this situation? What are you going to do differently so this doesn't happen again?

Mr. Mike Jordan: Well, essentially going into this round Phil and I will both.... We have to support the policy departments, and that's quite clear, as to commodities. What are the commodities? How are they defined? What is their coverage?

• 1015

Essentially, I think the policy departments will come to us and ask us for information in terms of product coverage, what the products are, and as we go into any round we'll be there to provide the background information, the statistics, our interpretation of national legislation and our interpretation of the international convention, because that's a key element too; we have international rules in terms of classifying goods. So going into this round, we're committed to providing that necessary backup to the policy.

Mrs. Rose-Marie Ur: But shouldn't you be getting together prior to that with all the people, rather than saying after the fact that they should have come to you?

Mr. Mike Jordan: That process has already started on the whole next round of negotiations. We are in fact talking to the policy departments in terms of the next rounds. As you know, there has been some public consultation on the next round, and we are now dealing with the policy departments on a raft of issues, a raft of commodities across the whole spectrum.

Mrs. Rose-Marie Ur: It's important to note that when we were in Washington as the agriculture committee, they had their report together, ready to put forward in July. I don't know how far along we are here in Canada.

As one of you gentlemen has stated, Revenue Canada is bound by legislation. Is that not the same legislation the U.S. is bound by as well? Are we reading English differently in Canada than they are in the U.S.?

Mr. Phil McLester: In no way. In fact—

Mr. Joe McGuire (Egmont, Lib.): We translate it.

Mr. Phil McLester: I should mention that a recent phenomenon with our international trade negotiations has been the conclusion and introduction of the harmonized system, which is this nomenclature we spoke of earlier. In the past, international negotiations of the WTO went by commodity names and people could make their interpretations of that, but today, as we've seen with the dairy sector, they've tied their various negotiations to classification numbers, very specific classification numbers that are defined in Brussels.

My suggestion would be that if any commodities are considered.... We will provide all information possible, but if we know of any commodities that are under negotiation, we are already meeting with the Department of Agriculture and the Department of Foreign Affairs and others to try to give them the exact current classification of those goods.

Mrs. Rose-Marie Ur: Can you not put in a catch-all category, as Mr. Core has suggested?

Mr. Phil McLester: That would be the Department of Finance. We can't change our legislation; it exists from the Department of Finance. We must simply administer that and give the best advice we can to the negotiating departments and the policy department of that classification.

Mrs. Rose-Marie Ur: May I ask one more little question?

The Chairman: Yes.

Mrs. Rose-Marie Ur: John, is Richard Doyle going to be your representative next time around?

Mr. John Core: Yes, Richard has been designated as the senior person on trade from Dairy Farmers of Canada.

The Chairman: Thank you.

Mr. McLester or Mr. Jordan, is there any country other than Canada importing these products without being subject to TRQs the way Canada is? Can you name one country?

Mr. Phil McLester: This type of product can be imported into the U.S. without TRQs.

The Chairman: But are they?

Mr. Phil McLester: I believe they are.

The Chairman: In other words—and this was simply triggered by Mrs. Ur's comment about whether the Americans read English the way we do—this is an obligation that comes out of the Uruguay Round, and you're saying the Americans, as importers of this product, are assessing this situation the way you are, that is, Revenue Canada. Am I right?

Mr. Phil McLester: That's correct. We did look into this some time ago. I know there were two to three other countries that we checked into where these goods were not subject to tariff rate quota or any other permit situation, but I'm afraid I don't have those other countries on the tip of my tongue. I'm sorry.

The Chairman: Mr. McCormick.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much, Mr. Chair. I'm sorry I was late coming in. We were having a rural caucus meeting, and certainly supply management was part of it.

It's good to see many people today recognize more than ever how successful supply management has been for all Canadians. I know you two gentlemen from Revenue Canada probably don't do all the grocery shopping for your household and may not always appreciate the fact of the prices of goods in this country versus our neighbours. The cheapest butter that I could find as I went looking for prices in Syracuse, New York, the other day, on purpose, was $2.99 for a very cheap butter. Supply management is providing us with the best product at the best price, and it's one of the reasons we need to work together to support our industries.

We were in this same room when we had the same type of conversation a year ago. I was sitting here about four seats down, and the importer was around the end of the table, the gentleman who applied for this butteroil-sugar blend to come into this country. What seemed to stink at that time, where Revenue Canada was thought very lax, was that this gentleman said when he applied to bring this product into Canada, there was no problem. A period of time went by and he made a second application, and still no one at Revenue Canada questioned anything this importer was doing, and as Mr. Core said, this wasn't a 45-55 product or even more diverse.

• 1020

There have been some scary stories in the past of people bringing in products—the cheese factories. We heard the story of bringing them in with golf balls and then turning around and driving the balls back to the States. On a day like today it probably would be a good idea to test that. But Revenue Canada did not react.

Our concern now is for the future. I have confidence that you're going to look after all these products and whatever is on the record now, but it's the new designer products that will show up in the future that we need to worry about, and there will always be more there. On these commodities, we need to have a commitment from Revenue Canada. You talk about bending over backwards, but we need to have you committed to at least telling the other departments of government that are involved that you see some smoke on the horizon.

We have the same English law and the same English language as the Americans. And by the way, English will become a minority language in North America in the year 2023. That's an accepted fact. And right now, today in United States.... No, we're not shoving French down their throat, excusez-moi, but Spanish is automatically going to become the most spoken language.

We keep earning this boy scout badge. We're the ones who always lay down and we follow all the letters of the law, and our American colleagues do not. Whether it's a farm aid program or whether it has to do with the butteroil-sugar blend, if the Americans were in the same position, they would put a stop on it and they would do something about it. But we're the boy scouts. No wonder our suppliers are sometimes concerned about the government.

Mr. Core, I see the potential of 25% that could be used in the butter and ice cream manufacturing. Approximately what percentage of the market is fed and supplied now by these imports?

Mr. John Core: The most recent figures suggest 15% to 20%.

Mr. Larry McCormick: I know you don't get a month-to-month report, and it's too early in 1999 to tell, but are the imports at probably the same level as they were last year?

Mr. John Core: Once this blip in price changes in the United States, we seem to be heading back to the eight million kilogram level. That's speculation, but that's what it appears to be.

Mr. Larry McCormick: I know you've lost market, and I'm concerned about that, but with 15%, or whatever, of the butter being substituted with this blend now, are you satisfied that not more than 25% would ever be supplied by this product in the manufacture of ice cream? Or do you think some other designer product could be the threat?

Mr. John Core: I heard the testimony of Dr. Goff at the CITT hearing. He's an ice cream specialist from the University of Guelph. His comment was that substitution can take a place in ice cream as long as the quality of the product is maintained. He said you could in fact, in a worst-case scenario, go as high as 100% substitution if the product is maintained, stored properly, and so on. He did not believe that was going to happen, because storage and keeping qualities were issues that needed to be addressed, but he said the potential exists to go to 100% substitution. Quite frankly, that shocked me.

The Chairman: Thank you.

Sorry, Hélène, I should have gone to you before Larry. You're next, followed by Mr. Proctor.

[Translation]

Ms. Hélène Alarie: My question ties in with what Mr. McCormick just said. It relates to product quality. Over the weekend, I entertained a group of youngsters at my house and served them various brands of ice cream. They likes some brands a lot, but others less.

• 1025

Does the additive affect the quality of the ice cream? Putting it another way, is the additive, the butteroil blend, a good substitute for the butter found in ice cream or cream, or is there a difference? Not all ice creams are of comparable quality.

[English]

Mr. John Core: The only way I can respond is to reflect on what some of the representatives testified to at the CITT. Most of them indicated that they did not use butteroil-sugar in their premium quality ice creams, that they tended to use their butteroil-sugar in their lower-quality ice creams. So from my perspective, that indicates that, yes, there must be some quality implications depending on what products you use. In fact they made it clear that in their quality ice creams they used as much fresh cream as they could, and in their lower-quality ice creams they used their substitutes for cream, including butter and then butteroil-sugar. But definitely they claim that the butteroil-sugar was being used in the lower-quality ice creams.

[Translation]

Ms. Hélène Alarie: Have you ever wondered about exporting countries. I know that New Zealand and Mexico produce butteroil blends. Other countries probably do as well, including quite possibly the United States. Have you ever wondered if production is subsidized in these countries? In other words, are these countries also resorting to unfair trade practices when they export butteroil to Canada?

[English]

Mr. John Core: As you are aware, the product has been sourced in a number of different countries. At one point it was mainly the United States, and then it switched to Mexico and New Zealand. Our concern is that in the United States they purport to have a free and open market in dairy, but with their infrastructure, their federal market orders, their high levels of domestic support, and their export subsidies, we believe it's a distorted marketplace.

The New Zealand market does not have the level of distortion of other countries around the world. They're a low-cost dairy producer because of the grazing systems they have and the fact that they calf cows seasonally and don't produce milk year round. But New Zealand does have two price systems, and they do in fact do things differently. But anything that comes from the United States I'm very suspicious of, because I know the level of support that exists within that country.

[Translation]

Ms. Hélène Alarie: The matter of the CITT's decision still bothers me. Your deputy minister decided to seek an opinion from the CITT. Normally, he would call in the head of his legal department and give him a clear mandate to proceed. He'd likely tell him: “Go out and get an opinion so that we can settle this matter once and for all”. What in fact happened? Was a second mandate given? When lawyers defend a case, they act according to the mandate assigned to them by their department. They don't have a mandate at large. They ask for the proceedings to be suspended, then they go back and seek a new mandate. What happened exactly in this case?

I'm asking you this question, because I have a feeling that maybe other decisions will have to be issued regarding other products. If we're always sent packing by the CITT, then we'll give up trying. Ultimately, our producers will be penalized. That's all I wanted to say.

Mr. Mike Jordan: All I can say is that references like this are uncommon. I believe there have been either four, five or six such references. All I can tell you is that the matter was discussed, and the CITT chose to issue a decision, rather than an opinion. I can't give you any other reasons.

Ms. Hélène Alarie: I can tell you one thing. Had I been the deputy minister, I would have come down hard on my legal department, and none to soon either. This is going to set a precedent. That's my personal opinion. Thank you.

[English]

The Chairman: Thank you.

We'll go to Proctor, Bonwick, and Borotsik. Mr. Proctor.

Mr. Dick Proctor: Muchas gracias, señor el Presidente, muy amable. I'm just practising, Larry.

Mr. Rick Borotsik: La cerveza, por favor. I'm also fluent.

Mr. Larry McCormick: You can hide your head all you want.

Some hon. members: Oh, oh.

• 1030

Mr. Dick Proctor: John, just to follow up on the issue of the premium ice creams, as I gather it, under our labelling laws the consumer at the supermarket wouldn't know whether he or she was buying a product that included this blend as opposed to cream. You're indicating that I'm right.

Mr. John Core: Yes.

Mr. Dick Proctor: In the United States that would be marked.

Mr. John Core: I am not aware of the labelling restrictions in the United States, sorry.

Mr. Dick Proctor: When we were meeting in Washington, it seemed to me—and others will correct me—that the labelling requirements were much stricter in the United States, that they had to put everything on there. I don't know either. I just wondered if you did.

Mr. John Core: No, I'm not aware of that.

Mr. Dick Proctor: I wanted to come back to Mr. Jordan and Mr. McLester on this opinion versus ruling. I know that Mrs. Ur, Mr. Hilstrom, and others have raised it. It would seem to me that the reason one would request an opinion as opposed to a ruling is that it leaves the option open to some persuasion at the ministerial or deputy ministerial level to put pressure on to reject the advice. But once you get to a ruling, it seems to me that option would be lost and you're reduced to just a legal reaction to the ruling. It seemed to me that in your previous answer you were indicating that there wasn't much of a difference between an opinion and a ruling. So I just wonder if I could get some clarification on that.

Mr. Mike Jordan: I think the point I was trying to make was that they're both appealable in the final analysis. For reasons of its own, the tribunal decided to give a decision in this case, and it gave some jurisprudence in terms of other cases.

The law only provides for the deputy minister to ask for an opinion. But there's another section of the act, which the tribunal dealt with, that says that they “may offer any opinion, decision”. I think that's the wording of the legislation, without having that particular section before me.

I'd just like to point out that if they offered an opinion and we could analyse the opinion or decide whether or not to apply the opinion, once we take a decision on the particular classification and we start applying that on transactions, those actual decisions are appealable through the system. So when we actually take an administrative decision, whether or not there's an opinion, whether we side with the opinion or not, once we start applying a tariff classification decision, those actual transactional decisions can be taken to court, and the whole cycle would start up again.

The deputy minister can ask for a reference, and he has. There is that section referring to the deputy minister. He hasn't done that on very many occasions. I would suspect there have been six during my career of about thirty years. They're very particular situations.

In some cases the tribunal hasn't offered an opinion. They've basically given information on both sides of the issue.

What I was trying to say is that whether it was an opinion or a decision, for reasons of its own, as outlined in its decision, the tribunal offered a decision in this particular case. Because of the structure of the act, the opinion or the decision is appealable to the Federal Court. Even after that, when the department as an administrative body starts applying that decision on transactions, importers can take those actual decisions and start the whole process.

I mentioned earlier in my testimony that the tribunal has this dual ability: it hears appeals and it renders decisions. Under this section it can offer an opinion to the deputy minister. So I was saying that in the final analysis we could be in the Federal Court if the decision were appealed.

Mr. Dick Proctor: Mr. Core, was your legal counsel hoping for an opinion as opposed to a ruling?

Mr. John Core: I understand that when the discussion was held, our counsel did not object to a decision being made. I don't know what those arguments were at the time.

• 1035

I'm speculating here, but I think there was some concern that an opinion was simply an opinion. We believed we were going to win the tribunal, and of course that would have been a decision. But I'm not aware of the legal arguments.

Mr. Dick Proctor: Thank you.

The Chairman: Mr. Bonwick, Mr. Borotsik, and then Mr. Steckle.

Mr. Paul Bonwick: Thank you, Mr. Chairman.

Mr. Howard Hilstrom: I have a point of order, Mr. Chairman, for clarification. Why would it go from the Liberal side to the opposition side and then back to the Liberal side, leaving me out?

The Chairman: You're after Mr. Steckle. It's Mr. Bonwick, Mr. Borotsik, Mr. Steckle, Mr. Hilstrom, and then Mrs. Ur.

Mr. Paul Bonwick: Mr. Chairman, if Mr. Hilstrom has something he wants to deal with right now, I can put my name to the end, if you like.

Mr. Howard Hilstrom: It follows up on this thing. I'll take my turn, whatever.

The Chairman: Go ahead, Paul.

Mr. Paul Bonwick: John, from what I've witnessed today and as we've discussed, on the butteroil-sugar blend issue specifically, or blends in general, there are two issues we've been hitting on. One is blends and how other countries are trying to circumvent our existing tariffs in order to gain greater access to our domestic markets. Two is the broader issue of supply management and our ability to control our own domestic policies within this country, versus having them dictated by other countries.

To me the two are very much intertwined. The blend issue, as you most clearly stated, has a direct impact on our ability to defend the entire supply management philosophy, being the thin edge of the wedge.

On my comments, I didn't mean to cause my colleagues in the Reform Party to lose their tempers or become upset by outlining their actions in the U.S. There was no spin-doctoring involved and there was no bull. I was just simply outlining the facts of what took place in Washington.

I addressed the issue because when we understand what the negotiators are up against when they meet—

Mr. Howard Hilstrom: I have a point of order, Mr. Chairman.

The original comment—since you have brought it up again—that the Reform had a contrary view outside the country, in Washington, is not fact. We did not have a contrary view at that point. You've said it again now, and it's plain not true.

Mr. Paul Steckle: Let's get on to the discussion.

The Chairman: Let's just move on. We have some witnesses here. This is obviously some kind of internal dispute. Let's not get the witnesses involved.

Go ahead, Paul.

Mr. Paul Bonwick: Certainly there is no internal dispute from my perspective. I was just outlining the facts as I saw them.

On the issue of blends, could you possibly outline or speculate on other areas of concern you might have, if you're envisioning where other countries might be trying to circumvent the process again to gain greater access to our domestic markets? Are there particular products on the horizon that might be a threat, so we can identify them very clearly?

Mr. John Core: I don't have information on specific other blends that might be a risk. We continue to believe if they're butterfat blends, be they butteroil-sugar or whatever, when they arrive at the border, if they're used as a substitute for butter, they should fall into that tariff line classification. That's the point we're making.

We understood there were residual tariff lines that would pick up these kinds of issues. We're pointing out we don't think it worked properly with this particular one. When other blends like this come to the border, we continue to expect them to be put into the appropriate tariff lines. That's really what we're saying.

On identifying other blends that are being designed for circumvention, I have no specific knowledge of that, but there will be new blends in the future. We're just saying, put them in the tariff lines, where we understood they would go, that will allow us to continue to operate within a domestic market.

Mr. Paul Bonwick: I touched on one thing earlier with regard to presenting us with a point brief of sorts, outlining some of the issues of concern you might have. I would just encourage you—whether it's on identifying specific blends that may crop up where you envision a possible problem or just on more general terms—to make use of all members of the committee. We certainly have the line of access through to the minister, and in turn the negotiators, to present a case. The only way we're going to be successful in establishing that we, and not others, will be designing the domestic policy within this country is to work together to make sure there are good lines of communication between us. So in that regard, if you have any points, not just at the committee level but on an ongoing basis, make use of the offices and get those points across to us.

• 1040

Mr. John Core: Thanks very much. We'll have a discussion about this. If there are some specific issues of concern, we'll circulate them to all of you. Thank you.

The Chairman: Thank you.

Mr. Rick Borotsik: I have two very quick questions, and then I have to go to House duty. One of them basically follows what Mr. Bonwick just said. We talk about the internal markets and the domestic markets. I don't necessarily disagree that we should protect those domestic markets, if that's the policy. However, just recently a ruling from the WTO—the article 301 that was filed on dairy with a two-pricing system—was tabled. I believe there is potential for an appeal on that one, as well. Here we're arguing about imports, the TRQs and the classifications, yet on the other hand we've been taken to task and spanked, quite frankly, because we now have a two-pricing system with our export market, as opposed to our internal domestic market.

I'd like the opinion of the DFC as to where you see us heading on that one. It seems we have both issues on the table. In one case we were the bad guys, and in this case, I agree with you, perhaps we're the good guys. Can you give me your opinion on where we're heading with that two-pricing system, with respect to exports?

Mr. John Core: The ministers have announced it's Canada's intention to appeal; they have not yet done that.

Mr. Rick Borotsik: It is also the intention of the DFC and the CITT to appeal.

Mr. John Core: Yes. Our intention is fairly strong, as well as the minister's.

This issue was a specific question whether or not our special class pricing system falls under the definition of an export subsidy or not. The committee fundamentally ruled it did on three issues, basically. Again, it is subject to appeal. We believe we have very strong arguments that address some of the specific issues they dealt with.

The other comment I might make is this decision says anybody who operates a two-price system that has links back through organized marketing is in contravention of the export subsidy rules. I would suggest, therefore, that New Zealand is in contravention of those same rules, if that decision were to stand. I would suggest that some aspects of what the United States does will be in contravention of that decision, if it stands.

Mr. Rick Borotsik: If that is the case, then Canada obviously has the opportunity to appeal to article 301 with the WTO in the same fashion.

I have one other question. I appreciate your comments and I know you're aware of the fact there are some concerns there with export markets, as well as imports.

It is my understanding that when the CITT was struck, the Dairy Farmers of Canada were reluctant to, or perhaps at that time not even going to, appear before the CITT. That's what we heard at this table. Can you give me a very brief explanation why the Dairy Farmers of Canada would not appear before the CITT to put your position forward? Ultimately you lost, but why were you so reluctant to appear before the CITT?

Mr. John Core: We did not feel the mandate given to the appeals tribunal was broad enough to address all of the options that would be available to them. We were assured, in further discussions later on, they had a broad mandate to address all the options. Once we were assured of that, we appeared before the tribunal. We were concerned, when we read the directions to the tribunal, the mandate was not broad enough.

Mr. Rick Borotsik: If the appeal fails at the Federal Court level—if you decide to appeal to the Federal Court level—what's your next step in this whole butteroil-sugar blend scenario?

Mr. John Core: We still believe that in the end we may win.

Mr. Rick Borotsik: Okay, let's just be silly and assume you fail. Is there any other alternative?

Mr. John Core: I'm not prepared to speculate on that.

Mr. Rick Borotsik: Okay.

The Chairman: Thank you.

Since Mr. Borotsik mentioned he might be leaving a little early, I just want to remind all members that next week on Thursday we'll have two meetings in Room 237-C. Between 9 a.m. and 11 a.m, we'll meet with the Confederation of Canadian Faculties of Agriculture and Veterinary Medicine. Then between 12 noon and 1.30, the Minister of Agriculture and Agri-Food will be here. That's next Thursday, May 6.

Mr. Rick Borotsik: Thank you, Mr. Chairman.

The Chairman: Mr. Steckle, followed by Mr. Hilstrom.

Mr. Paul Steckle: I'd like to direct my questions again to Revenue Canada. I have a real difficulty understanding something.

• 1045

If butteroil substitutes can be used for other purposes, that's one thing, but one of the members on the tribunal clearly indicated that this is indeed a butter substitute. If it isn't, what is it? I guess that's the question.

Given that we're living the environment of Canada's agriculture, where we believe in and have supported supply management—whether all people support it is not the point, the point is that's the environment we're living in—how supportive is Revenue Canada of supply management in Canada? Do we have interdepartmental quarrelling about whether we should be in the supply management business at all? Do we have support within Revenue Canada for the supply management sector?

I realize this is getting pretty personal, but I'm concerned when I find the decision based on what you believe butter substitutes are—the butteroil and the sugar. I'd like to know what Revenue Canada's view of supply management is and how this whole thing factors, because obviously we ought to be working in tandem, not working in reverse directions. I know that's a big area, but I think we need to have answers to those questions.

Mr. Mike Jordan: From our perspective, we support the policy departments—the Department of Finance, the Department of Agriculture—

Mr. Paul Steckle: Okay, you support the Department of Agriculture.

Mr. Mike Jordan: We support Agriculture, Finance, and Foreign Affairs.

We are an administrative department. We have to administer the law as it is written, as it is struck. We have the international convention at the same time. Basically, what we have here is an administrative decision on how the goods are classified under the tariff as the tariff is written. So when the Department of Finance enacts legislation, enacts wording in the tariff, as an administrative department we support the policy departments. We provide information to them; we give them whatever information they need. But in the final analysis, this was an administrative decision that basically took the wording of the tariff in the commodity that was imported.

You mentioned the minority opinion of the CITT. We had a majority opinion of the CITT that looked at the wording construction of the tariff and said, based on this particular product blend, based on the wording of the tariff...which we had to do at the administrative level, with our complete rationale as to why it was classified in the tariff. That's what the majority opinion dealt with. And that's what we had to deal with as an administrator—the wording of the tariff from an administrative point of view. That's what we did.

We provided the rationale, and it was quite transparent, as I mentioned earlier. We said, this is the wording of the tariff. We knew the opposing argumentation and the opposing positions, and again, we dealt with those in the context of the wording of the tariff, which is a legal instrument. It is legislation, and I must apply legislation. And I'm subject to scrutiny. There are redress systems, so if I stray from the wording of the tariff, as I mentioned earlier, I could be back before the tribunal or the Federal Court.

So I guess from my perspective, we have to apply the legislation. The legislation is written. It is enacted. I have to deal with that wording, as the international conventions have to do at the same time. Other trading partners are faced with the same thing, because we have this international convention. So I have to deal with the wording.

Now, in terms of the policy departments, the Departments of Finance, Agriculture, and Foreign Affairs are the policy departments; we are the administrative arm. We administer the legislation that is in the final analysis enacted. In terms of applying the legislation, we support the policy departments as the legislation was in fact enacted.

Mr. Phil McLester: I'd just like to make one comment. I think there is some indication that we may or may not have sympathies for this position. We are not in fact allowed to have sympathies one way or the other. But it was indicated earlier—a point with which I took some issue—that we did nothing when this product was first imported and when someone asked us for a decision. In fact Revenue Canada was extremely sensitive to the early importations prior to the WTO agreement on this product, so much so that we requested the importer request an NCR so we could then go to the Department of Foreign Affairs and find out if this product required a permit, which we did. At our insistence, they indicated that permits were not required.

• 1050

But as I indicated earlier, our managers in the foods area very often call the dairy farmers and many other importers and protected industries in Canada to verify whether or not this product is one to which they are very sensitive, and then we give our opinion prior to coming up with a decision. So we're very sensitive to dairy products, and meat products, which are covered by TRQ as well.

Mr. Mike Jordan: On all our commodities, including these dairy blends, we will liaise with the policy departments concerned—the Department of Finance, Agriculture, or any other department that may be involved in that commodity in terms of legislative intent or background. In the final analysis, I have to apply to legislation—

The Chairman: We're out of time.

Mr. Hilstrom.

Mr. Howard Hilstrom: Thank you, Mr. Chairman. The underlying current of these discussions here has an awful lot to do with the upcoming WTO talks. There's no doubt about that, and that's why our questioning is as it is.

The butteroil question seems to me to have been one of the processors versus the producers, and that's why you get a lot of questions from us, trying to defend the producers. You've done a pretty good job, Mr. Jordan, in regard to these questions about opinion and decision and saying that both of them are appealable without really making a statement. So I'll make it for you here because it involves a minister.

Really, the minister, under an opinion, had a chance to side with the producers and leave it up to the processors to be the ones to appeal up the line. It seems that it ended up as a decision, and that relieved the minister from having to take this opinion and say I agree with the opinion, or I disagree with the opinion—whereas the decision was just automatic. Do you have a comment on that?

Mr. Phil McLester: With regard to whether or not it was an opinion, we asked the CITT for its opinion. But prior to that we had two major requests for classification by the DFC, each of which got a response that is over two and a half inches thick in rationale and this type of thing. We spent months and months on these responses. So an opinion in the majority, agreeing with what we've already told the dairy farmers, would not, I believe, have changed Revenue Canada's position.

Mr. Howard Hilstrom: I thought maybe this butteroil question, if it was an international decision, would have been made by an appeal under the WTO or something by an outside country that said we wrongly protected our dairy industry.

Mr. Mike Jordan: That is possible. You mentioned the minister, but again, it's the deputy minister requesting an opinion. This is administrative. Basically, we're looking at the legislation as we've had it constructed, and it was the deputy minister asking for an opinion before a third party. That would come back to the deputy minister, whether it's opinion or decision, and then the administrative decision has to be taken under the legislation we have to apply. It still says.... On two occasions we ruled the same way with an extensive rationale, and had the opinion come back at the administrative level, again, based on the legislation, I would have had to apply the opinion, which basically supported our position. Again, it was an administrative decision.

Mr. Howard Hilstrom: Okay, you've answered this really well and you should be commended for the answers you've given us. I feel satisfied with your answers.

My last question, Mr. Chairman, is to the dairy people here.

Mr. Core, I'm being told in the constituency, and as I travel around the country, by dairy farmers that they really want to see the domestic supply management system stay in place. It's vital. They can have their cost of production plus a bit of profit in there. Is the dairy industry still reviewing its position in regard to telling the government what their bottom line is? That's one question.

The second part of it is whether they would possibly tell the government that while they would like to be able to access foreign markets, their bottom line is that they do not want to see domestic supply gone—traded away, worked down, whatever. If the government had that black and white statement from the dairy industry that no matter what happens, they don't want changes to supply management, and if you can—it would be nice—they'd like to do more exporting.... But their bottom line is don't wreck what they have that's working well.

Do you want to comment on that?

• 1055

Mr. John Core: No question, our bottom line is we want to supply the domestic market through a supply management system. We've made that clear to government.

At the same time, we want to fully understand what all the rules are regarding the ability to export. The Americans' dairy policy is structured to fill their domestic market. They still have the opportunity to export. The Europeans' policy is to fill their domestic market for dairy using various policy instruments, but they still export.

The WTO negotiations set the rules for trade, and we want them clarified. We've pointed out clearly what our position is for the next WTO round. It's encompassed in the CFA position; it was a major part of the consensus meeting that was held last week, I believe here in Ottawa. So it's clear to government what our position is, and our main thrust is domestic. It is a domestic policy decision, but at the same time, what are the rules that allow dairy countries to trade in the world? We want to provide that opportunity to our producers as well if the rules provide for it. That's what the issues are all about.

The Chairman: Thank you.

Mrs. Ur, you get the last kick at the can.

Mrs. Rose-Marie Ur: I have two questions, one to John and one to Revenue Canada.

John, what can we as government do to improve the process going into the next round of negotiations?

Mr. John Core: I think the process that's begun of consultation and meeting with the various industry players and sectors is a good one. I think there's been far more discussion now leading up to the next WTO than probably took place last time. All of agriculture and the agrifood industry is working together trying to find a common position that's of benefit to all of agriculture. It doesn't matter which commodity or food processing industry you work in.

I think it's that process of achieving a consensus and being clear about it at the beginning, that Canada does have a clear position, and we're not going to be dictated to by some side agreement that the Americans and the Europeans bring out in the process. So that's key.

Mrs. Rose-Marie Ur: Okay.

To the gentleman from Revenue Canada, in your paper that you presented, under “Current Status”, you have written, “This decision confirms the long-standing departmental policy and interpretations surrounding the importation of such blended products”. With that being said, the way I interpret it is.... Am I seeing it right, or reading it right, that Revenue Canada actually did know the problems we're facing regarding butteroil and sugar? Because it says “this decision”, which is obviously the CITT decision, “confirms the long-standing...interpretation surrounding the importation of such blended products”. So why would you have not flagged that to the negotiators, if you knew?

Mr. Phil McLester: With respect, this comes along with things that have already been mentioned. Prior to the negotiations, this product, as I indicated, was being imported without permit. Now, we don't issue permits in Revenue Canada. They're issued by the Department of Foreign Affairs. So we specifically notified Foreign Affairs of the importation of this product and requested that they tell us whether or not a permit is required. Their response was no, it was not required.

They're the negotiators. The negotiators now know there are no permits required on this product. What more could we do? We could try to classify all goods and bring descriptions before the departments, but certainly the Department of Foreign Affairs was made aware that these goods were being imported, and we asked them if they wanted a permit. The export and import control bureau said no.

Mrs. Rose-Marie Ur: Could I have Mr. Core respond to that as well?

Mr. John Core: I think we just have to keep all of this in context. Those initial imports were 1992-93, prior to the new agreement that was signed. Yes, I agree there were no rules at that time that prevented it. The point was, though, we negotiated a new set of rules. There was a tariff TRQ line for this, and that's the issue that should have been addressed.

The last point I make is I find it really interesting that the minority opinion of the CITT was in fact written by Patricia Close, who at one time was the director of tariffication with the Department of Finance. She was an expert in that area, and she wrote the minority opinion. I encourage you all to read the minority opinion; it makes sense to me.

Thank you.

The Chairman: Thank you.

• 1100

I want to thank all of you for coming today. I'm quite sure this is not the last word on this issue. My sense of politics and government is that this will be heard again and again. I want to thank all of you, Mr. Core, Mr. McLester, Mr. Jordan.

This meeting is adjourned.