CIIT Committee Report

IN DEFENCE OF SUPPLY MANAGEMENT AT THE WTO

On 28 December 2008, the chair of the agriculture negotiations at the World Trade Organization (WTO) circulated the most recent version of the agriculture draft modalities text – a framework document that will form the basis of future agriculture negotiations at the WTO. That document included provisions related to sensitive products that, if accepted, would effectively undermine Canada’s system of supply management.

Members of the House of Commons Standing Committee on International Trade are strong supporters of supply management. Recalling that, in November 2005, the House of Commons unanimously adopted a motion stating:

That, in the opinion of the House, the government should give its negotiators a mandate during the negotiations at the World Trade Organization so that, at the end of the current round of negotiations, Canada obtains results that ensure that the supply management sectors are subject to no reduction in over-quota tariffs and no increase in tariff quotas, and also ensure an agreement that strengthens the market access position of Canada's agricultural exporters so that all sectors can continue to provide producers with a fair and equitable income

The Committee decided to study the defence of supply management by Canada’s negotiators at the WTO. The objective of this study was to ensure that Canada does not make any concessions on supply management during any forthcoming agriculture negotiations.

The Committee heard from the key figures involved in establishing and maintaining Canada’s negotiating position: Minister of International Trade, Stockwell Day; as well as Canada’s Chief Agriculture Negotiator at the WTO, Gilles Gauthier, and Don Stephenson, Assistant Deputy Minister for Trade Policy and Negotiations at the Department of Foreign Affairs and International Trade (DFAIT). The Committee also heard testimony and received written submissions from stakeholders in the supply managed agricultural sectors.

THE WTO AND SUPPLY MANAGEMENT IN CANADA

Canada’s poultry, eggs and dairy industries operate under a system of supply management. Under this system, domestic production is controlled, and prices are pre-determined and adjusted to reflect farmers’ costs of production. Steep tariffs are levied on imports of these goods to prevent foreign suppliers from entering the Canadian market and competing with domestically-produced goods.

From a trade perspective, supply management works in the following way: the WTO requires Canada to offer a certain minimum level of access to its domestic market for agricultural products. In the case of supply-managed goods, it does so through a tariff rate quota (TRQ) system. Under the TRQ system, Canada allows imports of supply-managed goods, up to a pre-determined threshold, at relatively low tariff rates. Once the TRQ has been filled, however, a special import permit is required for any additional imports and the tariffs levied on those imports become prohibitive, thus effectively closing the Canadian market to any imports exceeding the TRQ threshold.^[1]

Witnesses appearing before the Committee outlined the importance of Canada’s supply management system in providing fair and equitable incomes to farmers and its contribution to food security and food sovereignty in Canada. In their view, supply management is an important tool to protect the Canadian population from fluctuations in the food supply.

The most recent WTO draft modalities text on agriculture contains three specific provisions that, if accepted, would affect supply management in Canada. These provisions are as follows:

• Paragraph 71 would require all developed country members to designate up to 4% of tariff lines as “sensitive products.” ^[2]



• Paragraph 74 proposes higher tariff quotas for sensitive products, resulting in “new access opportunities equivalent to no less than 4% of domestic consumption.”



• Paragraphs 61 and 73 together would require that Canada reduce all its over-quota tariffs on supply managed goods by at least 23%.

WHAT THE COMMITTEE HEARD

Stakeholders representing the supply managed agricultural sectors, as well as some Members of Parliament, raised concerns about the potential threat that the WTO draft modalities text represents to supply management. Concerns were also raised about Canada’s position on supply management at bilateral trade negotiations with the European Union (EU).

In the case of the WTO negotiations, stakeholders and Committee Members were concerned that Canada should have been more vocal in its objections to restarting negotiations on the basis of the draft modalities text – a text which clearly endangers supply management. In the case of Canada-EU negotiations, it was noted that supply management was not explicitly excluded from section 3.1 of the Joint Report on the EU-Canada Scoping Exercise – the document that outlines the subjects to be part of bilateral negotiations.

Mr. Gauthier, Canada’s Chief Agriculture Negotiator assured the Committee that the Government of Canada has issued a clear directive to the negotiating team to ensure that decisions about the manner in which Canadian agricultural producers market their products continue to be made in Canada and not through international trade agreements. He observed that Canada’s position on this issue is extreme and thus challenging to defend, but that most countries understand that in complex negotiations at the WTO, each country is attempting to defend its own interests, both offensively and defensively. Canada is no different; we are attempting to advance our own interests while maintaining a hard-line position in defence of our supply management system.

Mr Gauthier noted that Canada has been insistent that the proposal contained in the modalities text allowing developed countries to designate 4% of their tariff lines as “sensitive” products is insufficient to protect its supply managed industries. For supply management to be adequately protected, the 4% threshold must be raised to 6%. Mr. Gauthier told the committee that a compromise had been proposed that would have allowed Canada to designate 6% of tariff lines as sensitive in exchange for raising its TRQ threshold on those products – effectively allowing more foreign supply to enter the Canadian market. That proposal was not acceptable to Canada’s supply managed industries.

Mr. Stephenson also reminded the Committee that the draft modalities text does not represent an agreed-upon compromise or that it threatens supply management. He explained that the draft modalities negotiating text is authored by the current chair of the negotiating group as a possible consensus document and as a starting point for negotiations. It is neither an agreed text nor a text which has received consensus support.

Minister Day reiterated Canada’s firm commitment to supply management:

We agree on the very clear, very firm direction the Parliament of Canada took in 2005: we have to protect our supply management system. That's our position, and we're going to continue to maintain it.^[3]

He reminded the Committee that Canada will not be forced to sign on to any agreement that it is not happy with. WTO agreements are negotiated by consensus and Canada cannot be coerced into an agreement; it can walk away from the negotiating table at any point.

CONCLUSION

The Committee was pleased to hear that the Government of Canada has instructed its negotiators at the WTO to defend supply management. We acknowledge that doing so in the face of opposition at the WTO is a challenging task and we appreciate the efforts of our trade negotiators in this regard. This Committee continues to support supply management and we thus recommend:

Recommendation:

That the Government of Canada affirm its unequivocal support of, and commitment to defend, Canada’s supply management system.