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2 William A. Kerr Department of Agricultural and Resource Economics University of Saskatchewan, Canada Presented to: The Sixth Annual Agri-food Policy Conference, Ottawa, January 20-22, 2016

3 Canada is a Trade Dependent Country 30 percent of Canadian GDP comes from exports vs (22% for China; 20 % Australia; 16% Japan; 13% US) Approximately 50% (by value) of Canadian agri-food output is exported Canada needs secure access to foreign markets security comes from trade agreements Expanding the agri-food sector requires new secure market access

4 Canada s Trade Landscape Member of WTO (162 countries) NAFTA CUSTA 1988 (opened market of $17500 billion/318 million people) NAFTA 1994 (opened additional market of $1900 billion/120 million people) NAFTA Total ($19400 billion/438 million people) Canada ($1500 billion/35 million)

5 Canada s Trade Landscape since NAFTA Israel 1997 ($270 billion/8.2 million people) Chile 1997 ($386 billion/17.8 million) Costa Rica 2002 ($64 billion/4.6 million) EFTA (Iceland, Liechtenstein, Norway, Switzerland) 2009 ($782 billion/13.5 million) Peru 2009 ($358 billion/30.8 million) Colombia 2011 ($598 billion/47.7 million) Jordan 2012 ($76 billion/6.6 million) Panama 2013 ($64 billion/3.7 million) Total since NAFTA ($2598 billion/132 million) i.e. 13% of NAFTA $/ 30% of NAFTA population

6 Canada s Trade Landscape Potential in the Near Future Canada-South Korea 2014 complete but not yet ratified ($1664 billion/50.4 million people) Canada-EU (CETA) complete but not yet ratified ($17400 billion/504 million people) TransPacific Partnership (TPP) complete but not yet ratified ($4624 billion/280 million people)*not counting the US, Mexico, Chile and Peru where Canada already has FTAs Canada-India in the near (?) future ($6774 billion/1250 million) Potential Total ($30462 billion/2085 million people) i.e. one and a half times the size of NAFTA $/almost 5 times NAFTA population

7 Canada s New Trade Landscape If all the trade agreements are actually ratified and negotiated Canada will face a radically new trade landscape Outcome will depend on: The actual ambition of the agreements Canadian firm s willingness and ability to seize the opportunities created The ability of Canadian firms to meet the new competitors

8 Why Were There No Significant Agreements Between 1994 and 2014 Negotiating resources are scarce so countries prioritize The Canadian market is simply too small to make Canada a priority for negotiations (e.g. EU negotiating with MERCOSUR, with new members, with India, with South Korea) EU has only a few countries it does not have agreements with so eventually Canada became of interest

9 Why Were There No Significant Agreements Between 1994 and 2014 Canada had to literally beg to be allowed to join the TPP negotiations Had to agree to negotiate over Canada s very protected supply managed agriculture sectors Doha failure only latterly became apparent India, South Korea Of course, for Israel, Costa Rica, Panama, Jordan, etc. Canada was a big fish

10 A Word on the WTO The Doha Round negotiations have been going on since 2001 no success and no likelihood of success One of the reasons for the interest in regional trade agreements Major problem at Doha is agricultural trade often largely left out of FTAs In terms of Canada s trade landscape 50 countries have joined the WTO since 1994 (including China and Russia)

11 If Canada s Trade Landscape is About to Change in Such a Fundamental Way Why is it So Quiet? Remember the debate that raged around NAFTA Protests (sometimes violent) over WTO negotiations NAFTA and proposed WTO agreements are very transparent Current negotiations have been conducted with a great degree of secrecy Consultations/briefing for industry Almost no public debate Presented as done deals no debate lots of spin

12 Secret Negotiations Secret negotiations mean little opportunity for debate Secret negotiations also mean little analysis I challenge you to go home and see if you can find any serious analysis of the CETA or the TPP Why are the negotiations secret? CETA standard operating procedure for the EU Commission TPP Canada joined late rule of secrecy already established Convenient for negotiators/governments

13 Reading the Text Canada-South Korea Agreement was formally initialed by President Park and Prime Minister Harper Sept 22, 2014 But not yet ratified by either country Text is available What is the level of ambition?

14 Reading the Text Canada-South Korea Important for Canada so as not to fall behind the US Considerable duty free access to both markets but 10 year phase-outs for many products Agriculture No liberalization of Canada s supply managed sectors Long phase out of Korean tariffs on beef Korea has safeguards on many products No Canadian investment in rice or beef farming in Korea

15 Comprehensive Economic and Trade Agreement (CETA) EU-Canada Canada and the EU negotiated for almost 5 years (Oct 2009 Sept 2014) Negotiated in strict secrecy Agreement announced Sept 26, 2014 text posted (500+ pages) Still must be ratified by Canadian Parliament, EU Council, EU Parliament and individual Member States of the EU

16 Agriculture in the CETA: A Protectionist Not So Grand Bargain Everything is on the table but Sensitive areas in agri-food trade on both sides Canada supply management EU biotechnology, beef produced using hormones, markets for beef and pork Speculation on a Not So Grand Bargain in Agriculture Canada keeps supply management while EU retains contentious SPS barriers Special interests of the EU market access for specialty cheeses, recognition of geographical indications, pricing of wine

17 Agriculture in the CETA: Direct and Indirect Implications Direct implications for agricultural trade Tariff Reduction Expansion of TRQ quotas Special Safeguard Rules of Origin SPS Import Regulations Indirect affects on agri-food trade Pricing of wines and spirits Geographical Indications Anti-dumping Trade in the products of agricultural biotechnology

18 Agriculture in CETA: Tariffs There are 5 tariff schedules applied to goods: A immediate; B 4 years; C 6 years; D 8 years; S 3 years but start delayed 5 years; E no reduction Ag products with current low levels of protection on schedule A All of Canada s supply managed product s above quota tariffs on schedule E no reduction Both Canadian and EU within quota tariffs on schedule A (curious)

19 Agriculture in the CETA: TRQ quota increases - EU EU quota on wheat (current 39,000 tonnes - mt), CETA adds 100,000 mt Canadian global exports 12 million mt EU wheat production 140 million mt Bison in the beef TRQ 3000 mt Beef high quality mt, frozen mt Must be produced without hormones Annual allocation by EU Pork mt (10% increase) but SPS

20 Agriculture in the CETA: TRQ quota increases - Canada Supply management requires restrictions on imports Canadian TRQs EU particularly interested in market access for specialty cheeses Increase in quota of mt more than double current allocation Total will be only 7 percent of Canadian cheese consumption Are these cheeses substitutes for Canadian cheese? No mention in CETA of other Canadian TRQs (dairy, chicken, turkey, eggs, hatching eggs)

21 Agriculture in the CETA: Special Safeguard There is a provision for Canada (and not the EU) to use a special safeguard for some agricultural products This is consistent with Canada s WTO arrangements Basically provides an extra layer of protection for Canada s supply managed products in case imports can be profitable after high above quota TRQ tariffs are paid

22 Agriculture in the CETA: Rules of Origin To qualify for wholly obtained status whereby the complex rules of origin do not apply animals and their products such as beef or pork must be born and raised in Canada Integrated NAFTA market for beef and pork means animals may be born in the US and either sent to Canada to be raised or for slaughter Means complex tracing and segregation to comply with Rules of Origin (similar costs to COOL) Some activities slaughtering, basic processing of crops, vegetables, fruits, nuts are deemed not sufficient to qualify as domestic products

23 Agriculture in the CETA: SPS Rules

24 CETA Provisions Affecting Agri-food Trade: Pricing of Wines Long running EU complaint In Canada regulation of sales of wines and spirits is constitutional authority of provincial governments In most Canadian provinces wine is sold through liquor commissions or directly in government owned stores High markups are applied historically to discourage consumption, latterly as a lucrative source of revenue

25 CETA Provisions Affecting Agri-food Trade: Pricing of Wines Canadian wine consumption has been rising rapidly EU complains that markups discriminate against its higher quality wines reducing imports Canadian government had to obtain support of provincial governments A number of provisions in the CETA meant to ensure that markups are flat rate and don t disadvantage EU wines The number of stores (BC and Ontario) selling only domestic wine capped

26 CETA Provisions Affecting Agri-food Trade: Geographical Indications EU has made geographical indicators a centrepiece of agricultural policy Gives groups of farmers and artisans monopoly extend the remit of the monopoly through trade agreements EU made it clear this was a priority in CETA In Canada (and US) this intellectual property is protected by trademarks conflict of laws Bigger problem generics in Canada have EU geographical indicators (e.g. feta) Canadian firms currently produce some of these products

27 CETA Provisions Affecting Agri-food Trade: Geographical Indications Very difficult negotiations Ended in a classic compromise Approximately 175 EU geographical indicators recognized by Canada (cheeses, processed meats, olives, olive oil, beer, baked goods, spices, vinegars, processed fruits and nuts) Current Canadian producers of generics grandfathered (Asiago, Feta, Fontina, Gorgonzola, Munster, Nürnberger Bratwürste, Jambon de Bayonne and Beaufort) No new Canadian producers of these products Cheese imports restricted by TRQ and special safeguard Canadian list empty

28 CETA Provisions Affecting Agri-food Trade: Anti-dumping CETA anti-dumping provisions have added a Public Interest clause Public Interest should be taken into account when determining if anti-dumping duties should be applied and in determining the size of anti-dumping duties If food prices for consumers would be expected rise as a result of anti-dumping duties, it may not be considered in the Public Interest

29 CETA Provisions Affecting Agri-food Trade: Trade in the Products of Biotechnology Canada is a major developer and exporter of agricultural biotechnology and its products Biotechnology in the EU is a very difficult and complex political problem regulatory regime is in flux Canadian exports suffer (GM canola; flax) and biotech development stifled (wheat) Canada wants EU to apply science-based SPS rules; EU Commission needs greater flexibility CETA provides classic compromise liked by negotiators set up a venue to talk and talk and talk a clear win for the EU

30 CETA in Summary Where protectionism existed prior to the negotiations they continue to exist in the CETA Supply managed products in Canada EU SPS measures and biotech plus markets for wheat and beef Significant liberalization only where protectionism not manifest Secret negotiations lead to the types of compromises liked by negotiators

31 12 Countries US, Japan, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Mexico, Canada Canada had to agree that supply management would be on the table to be allowed to joint the TPP Agreement reached October 5, 2016 just before the Canadian Federal election Ratification may be an issue

32 Better access to Japanese beef market but so do Australia, the US and New Zealand tariff reduction from 38.5% to 9% over 15 years New markets for Canadian agricultural products in Vietnam and Malaysia Supply management products in Canada manageable increases import quotas as domestic consumption grows high above quota tariffs remain in place One exception whey powder above quota tariff of 270% to zero in 11 years

33 TPP with all its annexes and schedules is thousands of pages long it awaits detailed analysis Will China join?

34 Secretive There has been a leaked draft for more than a year is it legitimate? With the recent election of the new government in India there was considerable optimism that the deal would move forward But India has become a spoiler at the WTO almost stopped the Bali pact Appears to be of limited ambition India still very protectionist regarding agriculture tariff reductions over 15 years but anti-surge protection Canada continues to protect supply managed agricultural products

35 Canada s trade landscape is relatively strong WTO 162 members 50+ new members since 1995 NAFTA CETA, TPP, Canada-India What about market forces?

36 Market Forces and Trade 9.6 billion people to be fed by 2050 is the Elephant in the Room only 35 years away

37 Market Forces and Trade 2.6 billion extra mouths to feed a 35 percent increase food demand Many people are getting richer in developing countries as one moves out of extreme poverty extra money is spent on food Most of the population growth will be in developing countries Agriculture already farmed unsustainably Climate change will reduce productivity

38 Dynamics of Food Demand Growth 1.4 billion people live on less that $1.25/day; 925 million of them suffer under-nutrition or hunger. 2.6 billion people live on less than $2.00/day; by then, most hunger (calorie) problems solved. As their incomes rise from about $2 to $10 per day, people eat more meat, dairy products, fruits, vegetables & edible oils, causing rapid growth in raw ag commodity demand. After about $10 per day, people buy more processing, services, packaging, variety, and luxury forms, but not more raw ag commodities. *Poverty statistics (World Bank) as of 2005, before commodity price explosion.

39 Country Population %<$1.25/day %<$2/day China 1, India 1, Indonesia Brazil Pakistan Bangladesh Nigeria Philippines Source: World Bank. World Development Indicators Population in millions.

40 Projected World Food Demand World food demand could double in first half of 21 st century: 50% increase from world population growth almost all in developing countries. 50% increase from broad-based economic growth in low income countries The World Bank has estimated the number of people in developing countries in households with incomes >$16,000/year will rise from 352 million in 2000 to 2.1 billion by How many presently low income consumers escape from poverty is the most important determinant of future global demand for food.

41 Percent of Population Living in Urban Areas Region World Africa Asia Europe Lat Am/Carib North America Oceania Source: U.N. Population Office. World Urbanization Prospects: 2007 Revision

42 Not Growing Food

43 Future Global Market Growth for Agri-food Products The combination of 35 percent more income and rising incomes for many require a doubling of food production in 35 years Some of this will come from increased production where the extra people will live but far from all A lot of the increased food consumption will come from international trade from net food exporting countries

44 Source: Center for Sustainability and the Global Environment, University of Wisconsin.

45 Net Food Exporting Areas Canada is one of the major net food exporting countries of the world food production much larger than domestic demand The Canadian prairies is one of the few areas of the world that can considerably expand agricultural production There are major infrastructure challenges to moving significantly increased volumes of food to international markets, particularly to the Pacific

46 Net Food Exporting Areas Other major net food exporting areas have major constraints on expansion Kazakhstan, Russia and Ukraine who would make major investments in farming or infrastructure? US ambitious biofuels policy EU ambitious biofuels policy and no biotech Brazil declining infrastructure investment Australia climate change - drought Canada, particularly the prairies, is well placed to capitalize on global growth in food demand

47 The export mix There will be lots of opportunities to export agri-food products with considerable value added to the rich Don t discount commodity exports nature has designed the almost perfect tradable product

48 Back to the landscape for a moment One third of the projected growth in global food markets will take place in India India will have to import lots of food Canada is the only major agricultural exporter to be negotiating seriously with India The Canada-India trade agreement could give Canada a real edge in the globe s most rapidly expanding market.

49 In the next few years Canada s trade policy landscape is likely to change dramatically most significant change since NAFTA Global market forces can only mean a bright future of Canada s agri-food sector through trade There will be significant infrastructure challenges if the potential provided by the trade landscape and market forces is to be met To assist the Canadian agri-food sector to get ready for the opportunities that are coming, there is a crying need for study and analysis

50 If you are interested: Kerr, W.A. (2010) Conflict, Chaos and Confusion The Crisis in the International Trading System, Cheltenham, Edward Elgar, 196pp. Kerr, W.A. and J.E. Hobbs (2015) A Protectionist Bargain?: Agriculture in the European Union-Canada Trade Agreement, Journal of World Trade, 49 (3): Kerr, W.A. (2014) Food Security and Trade: Some Supply Conundrums for 2050, Journal of International Law and Trade Policy, 15 (2):