1. AGRICULTURAL TRADE Peter Kuperis Senior Trade Policy Analyst Alberta Agriculture and Food (780) 415 –8608 peter.kuperis@gov.ab.ca

2. ARCHITECTURE OF TRADE

3. OVERVIEW Trade is the exchange of goods and services across national borders Trade operates at three different levels – Global – Regional/bilateral – Internal Trade agreements set the rules of trade between two or more jurisdictions

4. OVERVIEW Countries regulate trade through: – Tariffs (tax on imports) – Quotas (quantity or value limits) – Regulations (health, packaging,consumer protection) – Export taxes – And other methods

5. WTO Global trade is governed through the World Trade Organization (WTO) – 150 members – Began as GATT – General Agreement on Tariffs and Trade – Objective is to liberalize trade by reducing tariffs and eliminating subsidies – Agriculture was added to global trade rules in 1994

6. WTO WTO gives its members a forum for settling disputes Can challenge another country’s subsidy or regulations through dispute settlement E.g. EU beef hormone ban, US cotton, Canada dairy

7. WTO WTO Agreement on Agriculture – Contains tariff reduction commitments by member countries 34% average reduction was agreed to in 1994 – Defines 3 types of subsidies – amber, blue, green – Limits export subsidies and gradually reduces them

8. WTO Amber – Most trade and production distorting – Amount of spending on amber programs is limited U.S. yearly limit is US$19.1 billion Canada’s limit is $4.3 billion – Example – pay farmers $3/bu of wheat Incentive to grow wheat regardless of price and other market conditions

9. WTO Blue – aka “the blue box” – Trade and production distorting programs BUT limits are placed on production – e.g. per head payment on cattle but number of cattle per acre is limited – Currently have no limits on blue box spending – “Transition mechanism” away from amber programs

10. WTO Green – aka “Green box” – Least trade and production distorting – Payments cannot be based on current prices or production levels – e.g. income support payments, environmental programs, research, infrastructure – No limits on spending

11. WTO Export subsidies – Payments contingent on export – Most trade distorting type of subsidy – E.g. EU “export refunds” Pays farmer difference between price received for product exported and the domestic price

12. WTO Also have rules on regulations to protect animal, plant and human health (SPS) Rules on use of technical barriers to trade (TBT) – e.g. labelling, standards, packaging, grading)

13. WTO New round of negotiations is underway Doha Round – Launched in Doha, Qatar in Nov 2001 – Focused on 3 pillars – Market access, Domestic support, Export competition – Negotiations are still going on and agriculture is one of the most difficult areas – Hope to conclude negotiations in 2008

14. WTO Market access – Tariffs, tariff rate quotas, special safeguards – Have agreement to reduce highest tariffs the most (tiered formula) – Members will be able to designate a certain number of products as “sensitive” and make smaller tariff reductions – Tighter rules on use of safeguards

15. WTO Domestic support – Large reductions in amber spending under negotiation US limit could go from US$19.1 billion to US$7.4 billion Canada from $4.3 billion to about $2 billion – Cap on blue box payments – No substantial change to green

16. WTO Export Competition – Export subsidies, export credits, food aid, state trading enterprises – Elimination of all export subsidies by 2013 – Tighter rules on export credits and food aid – Rules on operation of state trading enterprises (e.g Canadian Wheat Board)

17. WTO Advantages of WTO – Global – access to many markets – Deals with subsidies (“level playing field”) – Effective dispute settlement mechanism Disadvantages of WTO – Long, slow negotiations – Slow, expensive dispute settlement

18. Bilateral/Regional Agreements between two or more countries Bilateral agreements address market access but usually don’t deal with subsidies Currently there ar380 bilateral agreements, expected to grow to 400 by 2010 Canada has bilateral agreements with many countries: – NAFTA (US, Mexico) – Israel

19. Bilateral/Regional Canada has agreements (cont’d): – Costa Rica – European Free Trade Association (Norway, Switzerland, Liechtenstein, Iceland) – Chile Canada has/is negotiating with – Dominican Republic & CAFTA (Honduras, Nicaragua, El Salvador, Guatemala) – Peru. Columbia – South Korea

20. Bilateral/Regional Canada has/is negotiating with (cont’d): – Singapore – CARICOM (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago – Jordan

21. Bilateral/Regional Bilateral agreements usually govern: – Tariffs – Regulations – Rules of Origin Excellent tool for gaining market access but don’t bring a “level playing field”

22. Bilateral/Regional NAFTA has been a highly successful trade agreement. – Since 1994 the total value of Canada-US- Mexico trade grew to US$ 845 billion in 2006 – Total Canada-US trade grew from US$199 billion in 1994 to US$509 billion in 2006 – Alberta ag exports to US grew from $1.9 billion in 1995 to $2.6 billion in 2006.

23. Bilateral/Regional Advantages of Bilateral agreements – Faster, simpler to negotiate – Market access Disadvantages – Don’t address subsidies – Often have poor dispute settlement mechanisms

24. Bilateral/Regional What should be priority countries for bilateral trade agreements?

25. INTERNAL TRADE Agreements governing trade within a country Canada has the Agreement on Internal Trade (AIT) – July 1, 1995 – Governs trade in many areas including agriculture – Primarily deals with Provincial and Federal regulations – Each sector has its own Chapter – its own rules – Dispute settlement – no penalties for failure to comply Quebec margarine

26. INTERNAL TRADE AIT – Currently under review Alberta has 2 more inter-provincial trade agreements – Trade Enhancement Agreement on Agriculture BC, Alta, Sask, Manitoba, PEI, Yukon Expands agricultural trade beyond AIT

27. INTERNAL TRADE Alberta agreements (cont’d) – Alberta-BC Trade Investment and Labour Mobility Agreement (TILMA) April 1, 2007, transition to April 1, 2009 Governs trade in all sectors, one set of rules for all sectors Effective dispute settlement with monetary penalties

28. Alberta’s Trade Objectives Trade Liberalization – Maximum possible market access – Lowest possible levels of trade-distorting support – Elimination of export subsidies

29. THE DEVIL’S DETAILS

30. WTO Disputes EU beef hormone ban (SPS) – Continued non-compliance and retaliation Canada dairy (Export subsidies) – Removed Canada’s ability to export dairy products Canadian Wheat Board (Subsidies) US corn subsidies – Alleges US has exceeded its amber limits

31. Tariffs Tariff parity between Canola and soybeans High tariffs and restrictive TRQ’s for beef and pork Tariff escalation – Tariff on processed product significantly higher than on raw material – E.g. tariff on canola seed – 10%, canola meal – 25%, canola oil – 80%

32. Regulatory Barriers Beef market access post-BSE Potato cyst nematode – US, Mexico Ractopamine residues in pork – China, Taiwan EU regime for licensing genetically modified organisms

33. Trade in Major Commodities Wheat – Canada had exports of $ 4.7 billion in 2007 – Top 5 markets in 2007 were the US, Indonesia, Japan, Mexico and Iraq Canola – Canada exported $ 2.26 billion in 2007 – Top 5 markets: Japan, Mexico, China, US, Pakistan

34. Trade in Major Commodities Barley – Exports of $ 765 million in 2007 – Top markets were: Saudi Arabia, US, China, Japan, Columbia – $315 million of this total was malt barley – Top malt markets were: US, Japan, Brazil, Venezuela, South Korea

35. Trade in Major Commodities Fresh and frozen pork – Exports of $ 2.7 billion in 2007 – Top 5 markets: US, Japan, Australia, South Korea, Russia Fresh and Frozen beef – Exports of $ 1.2 billion in 2007 – Top 5 markets: US, Mexico, Hong Kong, Japan, Macau

36. Trade in Major Commodities Dairy – Exports of $232 million in 2007 – Top 5 markets: US, UK, Egypt, South Korea, Mexico Poultry meat – Exports of $ 238 million in 2007 – Top 5 markets: US, Hong Kong, South Africa, Philippines, Macedonia

37. Trade in Major Commodities

39. Case Study: Beef and Cattle In 2002 beef exports were $ 2.2 billion and exports of cattle were $ 1.8 billion In 2003 BSE was found in Canada Virtually all borders closed to Canadian cattle and beef overnight Devastating impact on beef and cattle industry

40. Case Study: Beef and Cattle US also found BSE in late 2003 and experienced the same border closures Due to a common policy of “one case and you’re out” US and Canada began negotiating for renewed access to markets Worked with other major beef exporting nations to get a new set of World Animal Health Organization (OIE) guidelines

41. Case Study: Beef and Cattle New OIE guidelines say that if a country has proper BSE safeguards in place then all beef products are safe for trade Canada has slowly regained access to major beef markets: – US restored access in stages: Boneless UTM in August 2003 All UTM and live UTM cattle in July 2005

42. Case Study: Beef and Cattle US Access (cont’d) – November 19, 2007 - Restored access for all cattle born after March 1, 1999 for any purpose – Effectively restores almost all of former trade with US Mexico – UTM beef and dairy breeding cattle under 30 months of age

43. Case Study: Beef and Cattle Japan – Canada has access for boneless beef from animals under 21 months of age South Korea – No access for beef or live cattle – Negotiations very slow and difficult China – No access for beef or live cattle

44. Case Study: Beef and Cattle

45. Macau – All beef Hong Kong – Boneless UTM Taiwan – Boneless UTM Cuba – Open to all beef and cattle

46. Case Study: Beef and Cattle Negotiating approaches – US – Access according to OIE and nothing less – Canada – has taken a similar approach but less aggressively – Both countries accepted staged access in the past What to do with China and South Korea?

47. Case Study: Beef and Cattle Other market access barriers for beef – EU hormone ban – High tariffs and a safeguard in Japan – Likely to be designated as a sensitive product by many countries

48. Case Study: Canola In some markets soybeans are charged a lower tariff than canola – China charges a tariff of 9% on canola and 3% on soybeans (temporarily reduced to 1%) Canola also faces tariff escalation – Japan:canola seedno tariff canola oil10.90 yen/kg - 13.20 yen/kg

49. Case Study: Canola Tariff escalation (cont’d) – Korea:canola seed10% refined canola oil 30% soybean oil5.4% – Taiwan: canola seed0 – 9% canola oil4.3% - 15% soybean oil5% - 8%

50. Case Study: Canola How to address tariff parity? How to address tariff escalation? How to address regulatory barriers?

51. Case Study: Canola Other canola access issues – EU regulations on genetically modified organisms – Maximum residue limits on herbicides and pesticides – Quebec bans on coloured margarine and dairy blends

52. “New Frontiers” of Trade Genetically modified organisms Biofuels - An agricultural product or an industrial product? Who matters – rising importance of China, India and other emerging economies Production processes – organic, natural Geographic indicators – champagne, parmesan

53. Conclusions Trade operates on three levels: – Global, bilateral, internal – Global deal is best way to deal with subsidies – Bilaterals focus on market access – Internal trade primarily about regulations Alberta government favours maximum possible trade liberalization

54. CONCLUSIONS

55. Conclusions Trade can be very complicated – Combinations of tariffs, regulations and other barriers Small, open economies like Canada benefit from a rules-based trading system – Don’t have economic power to force borders open – Don’t have large enough population to be a priority for other nations

56. Conclusions Humans are very creative – As traditional barriers come down (e.g. tariffs) new ones are created – New products and processes create demand for new regulations and trade rules (e.g. biofuels) Increasing trade also creates debates within a country – Winners and losers