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)

1822 - 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 Billion2005 = $500 Billion

Exports of Goods and Services ($millions)1971- 2005

0

100000

200000

300000

400000

500000

600000

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Importance of Trade to Canada

Exports are a significant part of our economy (output, income, employment)

$1.3 Trillion GDP (2005)

Exports/GDP (Percent)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Exports, GDP and Current Account for Some Trading Partners

Source: CIA World Fact Book (2006 estimates)

Country GDP ($T) Exports ($B)

%GDP Current Account

US 13.2 T 1020 8 - 862 UK 2.34 T 469 20 - 58 Japan 2.5 T 590 12 174 China 10 T (PPP) 974 10 179

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

2001 2003 2005 Agricultural and fishing products 31078 29243 30218 Energy products 55770 60482 86924 Forestry products 40288 34433 36606 Industrial goods and materials 67792 66893 84641 Machinery and equipment 102554 88679 94641 Automotive products 92527 87385 88162 Other consumer goods 16307 17187 17321 Special transactions trade 8168 7689 8289 Unallocated adjustments 6248 6962 6257 Total Exports 420730 398954 453060 % Agr Exports 7.4 7.3 6.7 Canadian Imports 350071 342692 388210 Trade Balance 70,659 56,262 64,850

Canadian Trade Balance ($millions)

-10000

0

10000

20000

30000

40000

50000

60000

70000

1971 1976 1981 1986 1991 1996 2001

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

Canada-US Trade (Exports) ($millions)

100,000

200,000

300,000

400,000

500,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Canada-US Trade (Imports) ($millions)

100,000

200,000

300,000

400,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Agri-Food Trade is Important

62% of Agr Exports go to the US

Canada-US Agri-Food Exports

($millions)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

60% of Agri-Food Imports come from the US

Trade Balances: Total $9 Billion US $6 Billion

Canada-US Agri-Food Imports

($millions)

0

5,000

10,000

15,000

20,000

25,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

1980’s and 1990’s The Three Amigos

1989 CUSTA 1993 NAFTA 1995 WTO Uruguay Round

Conditions Leading to These Agreements 1970 - 80'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 (1986-87) ($Billions)

Producer Benefits 95.4

Consumer Costs 72.4

Government Costs 63.1

Total Costs 36.9

Benefits of Liberalization 35.3

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 (1986-1995)

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 1989

• 1988 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

4 - 1965 Auto Pact

5 - harmonize technical and phyto-sanitary reg's

6 - new dispute settlement panel

For Agriculture1 - 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 1991-93

Negotiated 1991-92, 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 (1986 - 1995)

Agricultural Outcomes of the Agreement:.1 – Market Access: Tariffs - reductions by an average of 21% by 2001

- tariffications subject to GATT reductions

- minimum access to increase to 5% by 2001

2 - Domestic supports - progressive reductions of 20% on average by 2001

3 - 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

Commodity Tariff Rate for Imports Milk 241% $34/hl Butter 298% $4/kg Cheese 246% $3.53/kg Chicken 238% $1.67/kg Turkey 155% $1.96/kg Wheat 77% $99/tonne Feed Barley 21.3% $16/tonne

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 Subsidiesimpacted 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 Round2001 - ??

1999 – Seattle: no agreement or real progress

2003 – Cancun: again no progress

2005 - Hong Kong

2006 - talks suspended, potentially revived in 2007

2008 - 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, 1868 - 1876

(Excerpted from Le monde diplomatique, December, 2003)