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Meeting of the Agriculture Committee

Brussels, September 19, 2018

Report

The first meeting of the Agriculture Committee took place in Brussels in a constructive spirit. The substantial and frank exchanges focused on the first experience in CETA implementation and contributed to developing a better understanding of each other's views.

Canada and the EU reviewed bilateral trade data since the implementation of CETA in September 2017 and discussed how to measure the impact of CETA on trade in agricultural products in the most relevant manner. Both parties’ data show similar trends:

• Canada’s agricultural imports from the EU are up;
• EU agricultural imports from Canada are down, for which the decline of durum wheat imports from Canada is a contributing factor, while many other agricultural imports are up.

The parties acknowledged that at this point it was not possible to draw any clear conclusions regarding the impact of CETA, even if the increases are seen as early positive signals, and that further assessment will be required once a longer reference period is available. Parties will seek to exchange trade data prior to the next committee meeting and jointly conduct intersessional work.

With respect to CETA implementation, Canada raised concerns and asked questions about the EU’s quota management system for meat quotas, specifically the automatic on-demand issuance of import licenses. Canada reiterated that this new market access under CETA remains an important focus for Canadian industry while also acknowledging the lead time required to produce in accordance with all EU market requirements. The EU explained that for volumes not allocated during the initial application period, import licenses are automatically issued on-demand but the allocation is not immediate because requests reaching the 28 Member States need to be first aggregated by the European Commission before they can be processed and subsequently issued later that same month. Canada also called for better access to quota utilization data. The EU pointed out that data on quota allocation, which is publically available on-line, is a reliable guide to actual imports.

Canada and the EU had an in-depth and constructive discussion on the implementation of the Canadian cheese quotas. The EU expressed concern about the low fill rate to date in 2018. Canada sought to assure the EU that the quota would be filled during the remaining of the calendar year, citing an anticipated increase in imports during the last quarter of the quota year.  In view of the strong and regular demand for EU cheese under the WTO quota opened by Canada, the EU considers that the low fill rate is rather likely to be linked to the management method chosen by Canada, in particular the allocation of half of the quota to Canadian cheese manufacturers, who do not seem to be the most likely operators to use it. Canada posited that the difference between the utilization of the WTO and CETA cheese quotas does not result from the allocation to cheese manufacturers, as cheese manufacturers have been allocation holders under the WTO quota since its inception, which has a long history of full utilization. Additionally, Canada also expressed concerns about comparing a quota that has been in operation for approximately 25 years, having the same allocation holders annually to a quota that has been in operation for approximately 12 months that provides significant opportunities for new entrants to participate, which was a key EU demand. The EU pointed also to the fragmentation of the volume in four pools which makes the system inefficient and to the development of a secondary market for import licenses, leading to fees being charged to exporters.

Canada indicated that its allocation methodology provides significant opportunities for increased volumes and new entrants across the value chain, and Canada believes that Canadian and EU officials should increase their efforts to connect new importers and exporters in order to take advantage of these new opportunities, especially as the Canadian market adapts to the increase in available volumes. The EU underlined that what matters is not if the quota is filled but how, and concluded on the need to review the functioning of the cheese quota management system and to address any malfunctions. Canada indicated that its commitment within CETA related to a quantity of cheese, not an associated value and, like all of Canada’s quotas, decisions regarding what product is to be imported under the CETA quotas rest with individual allocation holders.

The EU expressed doubts about Canada’s price class for milk protein ingredients (milk class 7), which are made available to the food processing industry at world prices. The EU argued that this new milk class potentially makes the concession in CETA of duty-free milk ingredients less valuable as it encourages import substitution and allows Canada to undercut prices on third country markets. Canada explained that Class 7 is an industry initiative to innovate and stay competitive in the new global market landscape. With respect to the issue of cross-subsidisation, Canada noted that prices for milk components in milk class 7 are the same whether the good is exported or sold domestically. Canada stressed that it is a very small player on the global dairy scene, counting for less than 1% of global dairy exports.

Canada shared its strong concern that exports of durum wheat, which used to be Canada’s leading agricultural export to the EU, have virtually come to a halt. Canada noted that this coincides with the development of national measures on origin labelling and misleading allegations of food safety issues associated with Canadian wheat, which consistently meets or exceeds all EU import requirements. The EU explained that the changes are not related to policy developments in the EU and noted that imports from Canada have been replaced by more competitive suppliers from the Black Sea and Central Asia regions, in particular Kazakhstan. Recognizing the various drivers of this drop in exports, Canada noted that more collaboration is needed to counter misinformation and improve public trust.

Canada highlighted legislative developments in the EU on pesticides and veterinary medicinal products, pointing out that they have the potential to seriously impact EU imports of agricultural products without a clear basis in international norms or a scientific assessment of risk. The EU explained that the legislation in question is intended to address legitimate public health concerns; it is fully transparent and non-discriminatory. With respect to pesticide residues, the EU reconfirmed that their intent was that while applying the hazard-based criteria to pesticides, import tolerances will be evaluated when requested on the basis of a risk assessment carried out by the European Food Safety Authority.

Canada raised questions about country-of-origin labelling for primary ingredients, applied at Member State level and the consistency with the new EU regulation. The EU explained that the Commission's implementing measure to complete the relevant EU legal framework will apply from 1 April 2020 and reassured Canada that the EU measure and current national measures on origin labelling will not co-exist as the national measures will expire progressively, at the latest by March 2020.

The following issues were also discussed at the request of the EU:

• The EU claims that its exports of EU milk protein concentrates are limited for cheese making in Canada due to Canada’s cheese compositional standards, which the EU claims are not in line with Codex.  Canada explained that the Safe Food for Canadians Act would not change Canada’s cheese compositional standards and Canada’s cheese standards will continue to not impact EU products.
• Canada’s approval of Member States’ meat inspection system: the EU stressed the importance of a roadmap to ensure market access for all Member States within a reasonable timeframe. It was agreed upon by both parties that this issue is best addressed within the framework of the CETA Sanitary and Phytosanitary Joint Management Committee (SPS JMC).
• Canada’s market access for tomatoes with green parts from Italy: the EU called for progress on this file. It was agreed upon by both parties that this issue is best addressed within the framework of the CETA SPS JMC.
• Animal welfare cooperation: Both parties acknowledged the need to further engage on the matter and pointed to the CETA Regulatory Cooperation Forum as the next opportunity to discuss.

Finally, Canada and the EU took stock on WTO-related issues: WTO Committee on agriculture, Canada’s and EU’s export subsidies and Canadian sugar countervailing duties.

The next meeting of the Committee is due to take place in spring 2019 in Ottawa, with regular contacts between the respective officials expected in the meantime.

Participants:

Agriculture and Agri-Food Canada
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Mission of Canada to the EU
European Commission, Directorate General of Agriculture and Rural Development
European Commission, Directorate General of Trade
European Commission, Directorate General for Health and Food Safety
Delegation of the European Union to Canada