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Why do we need a minister of international trade?

THE NATIONAL POST - 28 juillet 2008
Why do we need a minister of international trade?
Vincent Geloso

Last week, Canada went to the Doha world trade talks in Geneva committed to a contradiction: It sought to have global agricultural subsidies eliminated or reduced, but not its own. Michael Fortier, Minister of International Trade, appeared to be confident that Canada could protect its own supply-managed sectors, including dairy and poultry industries, while convincing others to remove their barriers. It’s a very paradoxical and even embarrassing stance, one that probably contributed to the collapse of the WTO talks. It might also make us wonder why we have a minister of international trade.

The ministry is actually very badly titled. It should be named the “Ministry of Managed Trade.” The Ministry of International Trade has consistently sought to have all supply-managed agriculture designated as “sensitive products,” thereby allowing Canada’s key farm products to be subject to a smaller cut in tariffs than other products. In a way, Fortier is trying to bargain for free trade where we already have free trade and for maintained protectionism elsewhere. Is that really advocating free trade?

Like most countries, Canada seeks reciprocity. We will only lower barriers if others do. But this idea of reciprocity reinforces the fallacy that import barriers are assets that can be bargained away, when in fact they are liabilities. Canada negotiates as if supply management boards and tariffs were actually something that made Canadians better off. But that is not the case. Instead, they should be eliminated. Supply management agencies such as the Canadian Dairy Commission (CDC) and provincial farm organizations reduce the supply of milk and other products to bump up prices at the expense of consumers. Protected behind tariff barriers of 200% to 300% varying by product, dairy and poultry producers can thus “tax” consumers. Refusing to question these policies and considering them as assets that Canada must only dispense with if others do the same is not free trade, it is managed trade based on the fallacy that trade protection is beneficial.

Following the collapse of the Doha trade talks in Geneva, it is reasonable to question the relevance of the Ministry of International Trade. The most recent statistics on agriculture in Canada, released last Friday by StatsCan, show that farms are getting bigger, thus gaining access to economies of scale as smaller farms disappear. This means that at least some Canadian farmers should now be more able to compete in international markets. They could easily survive without the help of the government.

Instead of supporting the farm marketing regime behind the fallacies of reciprocity and trade deals, Canada should begin looking at unilateral actions to dismantle its own farm protectionism. We have everything to gain: In the last 14 years, the price of milk in Canada increased 57.6% — two times faster than inflation — while production costs dropped by 6.1%. As the price rises, the quantity demanded drops, which explains why liters of milk consumed per person dropped 17.5% between 1987 and 2007. According to the Montreal Economic Institute (MEI), milk consumption will drop an additional 12% between now and 2020. Dairy and poultry supply management in Quebec costs $300 per family. This is what the Ministry of International Trade has been trying to protect. Is depriving lower income families of milk to help agricultural fat cats “defending Canadian interests”?

Australia, New Zealand and the U.K. got rid of supply management and now rely more on free markets. The case of Australia — which invented supply management in the 1920s — is the most striking: In 2000, Australia enacted a fundamental reform of supply management in the dairy industry. It eliminated support prices and implemented transitional aid programs for the producers who had lost, amongst other things, the value of their quotas. According to the MEI, real prices of “brand-name” milk and “no-name” milk respectively dropped 18% and 29%, providing AUS$118-million in savings for consumers annually. Australian dairy producers adapted by having bigger herds and enlarged their farms to be able to compete. Others modernized themselves or developed other areas of agricultural production. They did not need any help to survive in a freer market.

Canada should learn from the Australian reform and do the same. By acting unilaterally to remove barriers and abolish subsidies, Ottawa would deliver benefits to all Canadian consumers.

Ottawa has been advocating free trade of manufactured goods and liberalization of international financial services for years. On agriculture, Canada could join Australia and send a message to the World Trade Organization. But if that happens, what will Michael Fortier do? Canada would have a ministry of international free trade with nothing to manage. Then we could abolish the post.

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Vincent Geloso


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