Canadian Agriculture, and International Trade “A country that depends on exports, imports its misfortunes” Stephen Leacock, 1941 Trade has always been a big part of what Canada is all about Trade and trade routes motivated discovery (short cut to the East) Early development in the East the result of trade interests supply of resources to the colonial powers (Britain, France) Exploration and settlement of Western Canada: driven by trade interests Company of Adventurers The CPR + Macdonald’s National Policy (1878)

Fortunes and misfortunes of the 1600’s – 1900’s: All linked to trade Late 1700’s – Napoleonic Wars – Louisiana Purcahse (1803) Canada Trade Act 1840 – Corn Laws – 1849 Montreal Manifesto 1854 – Reciprocity Treaty 1900’s – prosperity linked to agr. exports 1911 – Federal Election (Laurier loses ….. again) Late 1800’s MacKinley Tariff 1930’s - Smoot Hawley Tariff Post WW II and future prosperity depends on our success in international trade

Canada Depends on Exports 1971 = $21 Billion 2005 = $500 Billion

Importance of Trade to Canada Exports are a significant part of our economy (output, income, employment) $1.3 Trillion GDP (2005)

Exports, GDP and Current Account for Some Trading Partners Source: CIA World Fact Book (2006 estimates)

Canadian Trade: All Goods and Services (Current dollars $million)

2005 trade balance with US = $150 Billion

The US is our most important trading partner 85% of exports go to the US 60% of imports come from the US Both have declined after 2001

Agri-Food Trade is Important 62% of Agr Exports go to the US

60% of Agri-Food Imports come from the US Trade Balances:Total $9 Billion US $6 Billion

1980’s and 1990’s The Three Amigos 1989 CUSTA 1993 NAFTA 1995 WTO Uruguay Round Conditions Leading to These Agreements 's Agriculture becoming more trade oriented as part of the early process of globalization Government intervention escalating, particularly during the 1980's (US/EU) programs based on support on a per unit of production > encouraged more production > coupled support interventions very trade distorting and costly to consumers and governments

Benefits and Costs of Support to Farmers in Industrialized Countries ( ) ($Billions) Producer Benefits95.4 Consumer Costs72.4 Government Costs63.1 Total Costs36.9 Benefits of Liberalization35.3 Transfer cost: $1.42 per dollar transferred Industrialized countries agreed that there would be benefits from liberalizing trade

ITO, GATT, WTO and the Uruguay Round ( ) Kennedy and Tokyo rounds and agriculture. progress on industrial goods agricultural support in the EC and US extensive general unwillingness to address the issue Motive: level of intervention and the expense attempt to reduce trade distorting interventions

Principle objectives of the Uruguay Round 1 - reduce production and export subsidies (distort trade) 2 - market access - lower import barriers of all sorts 3 - eliminate exceptions: all countries subject to the same rules 4 - better dispute settlement process 5 - general approach rather than different approaches/rules for different commodities 6 – include agriculture Cairns Group - countervailing power Canada’s Schitzoid Position (Article 11 (2c)) Concluded December 1993

CUSTA and NAFTA While the GATT dragged on, Canada and the US began to talk Motive: growing restrictions (lumber & hogs) by the ITC ITC acted as prosecution and judge US wanted better access to Canadian resources (OIL) negotiated within the GATT framework CUSTA approved in 1988; implemented in federal election was fought on the deal with the conservatives (Mulroney) winning who had negotiated the deal

Some Results from CUSTA (1989) 1 - agreement to phase out all tariffs, time lines up to 10 years 2 - liberalization of trade in services, financial transactions, investment 3 - guaranteed access to resources (both ways) e.g. energy resources Auto Pact 5 - harmonize technical and phyto-sanitary reg's 6 - new dispute settlement panel For Agriculture 1 - preserved supply management 2 – WGTA (GONE) 3 - meat inspection systems (exemption re: meat import laws) 4 - eliminate export subsidies between the two countries 5 - preferential treatment of wine in Ontario (GONE)

NAFTA Negotiated , completed before GATT extended CUSTA to Mexico, GATT framework extending to Mexico not important to Canada –bilateral trade was small – (1-2%) of Canadian or Mexican agr exports Much more important to Mexico and US trade Canada: be part of a growing system of trade agreements between US and other countries in the America's Environmental and labour concerns

NAFTA Outcomes 1 - extended CUSTA tariff reductions to Mexico over periods of up to 15 years 2 - eliminated quantitative restrictions (e.g. import quotas) 3 - SM still protected 4 - Tri-national panel to deal with subsidy issues 5 - commitment to work towards elimination of export subsidies 6- technical, sanitary and phytosanitary regulations and standards still sovereign must be based on science criteria 7 - strict limits on export taxes and no new tariffs 8 - Commission for Environmental Cooperation (CEC)

GATT/WTO Agreement ( ) Agricultural Outcomes of the Agreement:. 1 – Market Access: Tariffs - reductions by an average of 21% by tariffications subject to GATT reductions -minimum access to increase to 5% by Domestic supports - progressive reductions of 20% on average by Export Subsidies - progressive reductions in expenditures of 36% 4 - Sanitary & Phytosanitary Reg’s: - international scientific criteria 5 - Better dispute settlement process - International Trade Court

Some impacts on Canada 1) Market Access: Canada agreed to a schedule of tariffs for Supply Managed commodities, and grains and oilseeds. These were to be reduced over time. 5% access with no tariff Canadian Tariffication Rates Under the GATT

2) Domestic Support Provisions organized into categories: extent to which supports distorted trade GREEN BOX - minimal trade distortion - decoupled supports research, environment, disaster payments, structural adjustment AMBER BOX - trade distorting - subject to reduction over time direct support payments, input subsidies many Canadian programs fell into this box (GRIP, NISA, crop insurance) BLUE BOX - US/EU programs (fixed areas); transitory programs RED BOX – policies to be stopped - no agreement e.g. quantitative restrictions that were replaced by TRQ’s 3) Export Subsidies  impacted the US EEP and EU export restitutions  subsidies for grain exports (WGTA in 1995)

Bottom Line 1)SM emerged unscathed in real terms 2)Prices for Western grains did move down 3)Set the stage for more livestock production and exports to the US and Asia (Japan) 4)More market access for grain and oilseeds in the international market, and processed agr-food products

What’s Ahead - Doha Round ?? 1999 – Seattle: no agreement or real progress 2003 – Cancun: again no progress Hong Kong talks suspended, potentially revived in near agreement on agricultural texts 2007 US and EU - unwilling to agree on concessions on levels of domestic support and tariffs Future Issues for Canada ? >“Mega tariffs” > Environment > Food safety & food labeling (GMO) NATO II ? - trade agreement with the EU ?

For centuries, England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. After two centuries England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, Gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade. Attributed to Ulysses Grant, President of the US, (Excerpted from Le monde diplomatique, December, 2003)