CHAPTER 10:
AGRICULTURE AND AGRI-FOOD SECTOR

[I]t's important to develop Canada's approach, in my view, on both a multilateral and a regional basis, as this reflects the reality of the way in which markets are developing today. Some agricultural objectives and issues can be advanced through regional negotiations while others require multilateral solutions in order to be effective. As market integration continues and more processed foods and food components move across borders, trade agreements can assist the process of adjustment to the new trading environment. [William Miner, 29:1600]

Trade Developments and Objectives

The Canadian agri-food sector's propensity to export of 30% of its production is a clear indication that agricultural trade is very important for the sector's development. For certain products, in particular oilseeds and grain, nearly 90% of which are exported, trade is not only important, it is vital.

Canada's share of world trade in agricultural products averaged 3% between 1960 and 1996, falling beneath this figure in the late-1970s, 1980s and early-1990s. These fluctuations were directly related to the volatile conditions of grain markets. However, the global agricultural market of the 1990s is not what it was in the 1970s and 1980s, when it was dominated by unprocessed bulk products. International trade is now based on high value-added processed products whose development is more than ever driven by consumer needs. Canada's agricultural export markets have also changed with the dismantling of the Soviet Union, the European Union's rise as an agricultural exporting power and, in particular, with the implementation of trade liberalization agreements.

Agriculture has traditionally been left to aside in multilateral and bilateral trade negotiations, but the Canada-U.S. Free Trade Agreement (CUSFTA) of 1988, the North American Free Trade Agreement (NAFTA) of 1994 and, in particular, the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) have paved the way for a major reform in agricultural trade. Of course, genuine free trade has not yet been realized, but the trade liberalization process is at least well underway.

In preparing for further agricultural negotiations, it's important to recognize that the emerging policy environment is driving economies toward more openness, the integration of food systems, and greater competition. There is a need for flexibility in systems and in policies in order to allow for regional specialization and two-way trade or trade within the hemisphere. ... In other words, I believe the objective of the FTAA, as it was in NAFTA and the FTA before it, is to establish a free trade area as quickly as possible. [William Miner, 29:1605]

At the same time, one must understand why agricultural stakeholders are reluctant to enter negotiations at two levels. Experience has shown that countries often begin bilateral and multilateral trade negotiations in agriculture by discarding basic economic principles. As a result, they forge agreements that create more unfairness for selective sectors, which make for lasting trade irritants. The Canadian sugar industry is a perfect example.

Agricultural trade is now global and, even in cases where there is a high degree of economic and trade integration between two countries, no producer country is sheltered from the policies of the other country. This is precisely the case of the Canadian sugar industry, which is historically important to the economy, and is competitive and unsubsidized, relying extensively on its main export market, the United States. In world markets, however, the Canadian sugar industry must face major players, like the European Union and the United States, which benefit to a large extent from preferential sugar policies that protect their domestic markets.

In the 1980s, the United States limited Canadian sugar imports to approximately 10,000 tonnes per year. After the CUSFTA was signed, Canada's sugar shipments approached 35,000 tonnes, but, at the time of the NAFTA, Canada-U.S. sugar trade took a back seat to a U.S.-Mexico agreement, which granted a preferential allocation to Mexico. Then, with the Uruguay Round, the United States took advantage of vague rules in the Agreement on Agriculture to establish a global allocation of 22,000 tonnes in which Canada's allotted share was highly uncertain. It took a bilateral agreement in October 1997 to secure access of 10,300 tonnes for refined sugar, approximately 0.1% of the U.S. sugar market estimated at 10 million tonnes. This agreement can hardly be considered a victory since it merely prevents further erosion of Canada's access to the U.S. market. Even for products containing more than 10% sugar, the United States invokes various measures, including rules of origin on refined and unrefined sugar, to restrict entry of Canadian products into the U.S.

The case of sugar is one of many examples that clearly show how a series of trade liberalization agreements can lead to absurd situations that, in fact, impede trade. When witnesses told the Committee that it was preferable to give precedence to the multilateral trade negotiations (MTN) of the World Trade Organization (WTO) rather than to those of the Free Trade Area of the Americas (FTAA), their motive was to prevent a repetition of the sugar case. However, Canadian agricultural producers recognize that trade agreements of recent years have created promising foreign market opportunities for their growing industry and, therefore, endorse the strategy of the Canadian Agri-Food Marketing Council (CAMC), which aims to gain a 4% share of world agricultural trade by the year 2005, equivalent to $40 billion worth of exports. Yet Canadian producers are still concerned with numerous inequities that persist in agricultural trade, in particular with respect to market access and export subsidies, and feel there is often a lack of coordination amongst previously signed trade agreements. Moreover, this was Canadian producers' principal message to the Committee: the FTAA agricultural negotiations are an important exercise, but must be subordinated to the WTO multilateral trade negotiations.

Canada's Position at the WTO Multilateral Trade Negotiations

In June 1999, this Committee tabled a detailed report on the upcoming Multilateral Trade Negotiations at the WTO. In August, the federal government announced its initial position on agriculture for these negotiations, which is based on a certain consensus and is said to reflect the general commercial interests of the agriculture and agri-food sector. However, some interest groups maintain that Canada does not go far enough, particularly with respect to market access, tariff reductions for supply management products and in the reform of state trading enterprises. The main elements of Canada's position are discussed below.

Market Access: To improve market access for Canadian agri-food products, Canada will seek the zero-zero option; that is, the total elimination of tariffs and export subsidies for industries such as oilseeds and grains for which this strategy appears desirable. It will also seek to clarify the tariff quota rules, in particular by demanding actual minimum access equivalent to 5% of current consumption by product, not by product class. In addition, the Canadian position stipulates that minimum access allocations by country should be eliminated because they are often used as a barrier to trade. Finally, for the purpose of facilitating market access, in-quota tariffs should be eliminated where prohibitive out-quota tariffs limit access to in-quota volume.

Export Subsidies: Canada's second principal position in the upcoming MTN will be the elimination of all export subsidies for agricultural products, while ensuring that government export credit and guarantee programs, promotional activities and certain food aid programs do not distort agricultural trade.

Domestic Support: Canada will ask its WTO trade partners to set a ceiling for all types of support, but will demand maximum reduction, indeed even elimination, of production support measures, which are the most highly disruptive of trade, such as blue category measures (see "Agricultural Subsidies" in the Glossary). Canada will attempt to clarify green category criteria to ensure that its support measures have neutral effects on production and trade, while pursuing the objective of having all participating countries recognize once and for all that "green" measures must be subject to countervailing duties. Finally, Canada will seek the elimination of certain elements of the "peace clause"; that is, Article 13 of the Agreement on Agriculture, which restricts the right to appeal under the dispute settlement mechanism in cases where domestic support measures and export subsidies distort free competition and thus deny or impede market access.

Export Restrictions and Taxes: Canada will seek an agreement to subject export taxes and restrictions on agricultural products to effective disciplinary rules. For example, Canada will propose the inclusion of agri-food products in trade embargos and the use of export restrictions, which effectively reduce the proportion of agricultural products that may be exported on the basis of a standard reference period.

Sanitary and Phytosanitary Measures: Canada does not want the Agreement on Sanitary and Phytosanitary Measures opened up. Its approach will instead be to have member countries acknowledge the soundness of this agreement, which is based on the recognition of scientific principles and on the use of international standards.

Biotechnology: Recognizing the recent emergence of biotechnology in agriculture and related concerns and interests of agricultural producers and consumers, Canada will request the creation of a WTO Working Group, which would be responsible for reviewing the various aspects related to trade in biotechnology products and, if necessary, inform negotiators of those aspects which deserve a place in the MTN.

State Trading Enterprises: The objective of Canada's initial position will be to have the operations of agricultural product import monopolies comply with strict rules so that they cannot short-circuit market access commitments. As for export monopolies, such as the Canadian Wheat Board, Canada is prepared to discuss new disciplinary rules, but will require that they apply to both public and private monopolies.

The Agricultural Market of the Americas

Canada and the United States have privileged agricultural trade relations which have few equivalents elsewhere in the world. Over the 1995-1998 reference period, the United States was the main market for Canadian agri-food shipments, receiving 52% of Canada's total agri-food exports. Not been outdone, 60% of Canadian agri-food imports came from the United States in this period.

By comparison, the share of Canadian agri-food exports to Mexico averaged 2.2% in this period, whereas the share of agri-food imports from Mexico represented 2.4%. Brazil accounts for only 1.3% of our total exports and only 2.4% of imports. The respective shares of Canadian exports and imports in agri-food trade between Canada and Chile are equivalent and amount to approximately 1% of our total.

However, agriculture remains a field of exceptions that makes for a constant source of friction, even between major trading partners such as Canada and the United States. Commenting on the preparations of various countries for the next MTN of the WTO, the U.S. Secretary of Agriculture remarked that no one should be so naïve as to believe that we will have perfectly open markets. As a consequence, despite its name, we have reason to doubt that the creation of an FTAA will lead to genuine free trade in agriculture, even though it would be desirable to promote more open markets amongst the Americas as a counterweight to the rapidly growing European market. For Canada, greater trade liberalization amongst the Americas would mainly mean direct competition, not with trading partners that have major outlets to offer, but with competitor countries with relatively small domestic markets seeking their share of the enormous U.S. agri-food market.

Becoming more competitive is one of the goals of market liberalization. Indeed, if certain agricultural sectors see in the FTAA a strategy to enhance their competitiveness, it might then be interesting to determine what opportunities these negotiations afford, even if they are limited on a sectoral or product-by-product basis. The WTO's December 1998 report on Canada's international trade policies and practices concludes that Canada's export-based strategy, together with sound macroeconomic policies, has contributed much to Canada's solid economic performance. However, the report mentions that Canada's excessive dependence on the U.S. market may be a problem in the longer term. While conceding priority to the WTO's MTN to further expand the liberalization of global agricultural trade, the FTAA negotiations may be seen as a means to force Canada's agri-food industry, or at least certain sectors, to become more competitive. Such a development would, in turn, enable Canada to diversify its export markets more quickly than other export countries. From this perspective, Canada should take advantage of these regional negotiations to give certain sectors a chance to improve their ability to compete beyond what the WTO's MTN has to offer.

Witnesses told us that the main negotiating points in agriculture for the FTAA negotiations would be the same for the WTO's MTN. In the minds of a vast majority of witnesses, the WTO negotiations are a necessary priority, whereas a small minority mentioned that the FTAA negotiations should be used to advance certain issues, in particular, discriminatory pricing practices and subsidies.

The Committee does not want to paint itself into a corner by favouring the FTAA negotiations over those of the WTO. However, since the government has developed a position for the WTO's multilateral negotiations, the Committee recommends:

21. That the Government of Canada negotiate broader trade liberalization in agricultural products in the context of the World Trade Organization and seek to obtain more concessions, more quickly, in the context of the Free Trade Area of the Americas.