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Backgrounder: WTO issues for the CWB
At a glance
The WTO negotiations have serious implications for the grain farmers of Western Canada:
- Elimination of federal government guarantees of CWB initial payments to farmers and CWB borrowings, if a final deal is reached. Without these guarantees, marketing costs for farmers will be higher.
- Risk to the cornerstone of the CWB marketing system (the single desk).
- Potential benefits to western Canadian farmers in terms of improved market access; elimination of international export subsidies; reductions in trade-distorting domestic support by other nations; and disciplines on use of export credit and food aid. However, this is no a solution to the farm-income crisis.
Key issues:
- The point of the WTO negotiations is to minimize trade distortions. With no evidence that the CWB is trade distorting, its programs should not be on the table alongside major offenders like American farm support and European export subsidies.
- The WTO pressure on the CWB originates with the United States, where political rewards exist for a tough protectionist stance on wheat.
- Western Canadian farmers should be allowed to choose and use the marketing system that suits them best – there can be no "cookie cutter" approach to the agriculture policy.
- Countries representing Canada's main wheat competitors should not be allowed to dictate its marketing approach. If it doesn't distort trade, it's none of their business.
Click here to view the CWB's WTO trade position
Introduction
Seventy years ago, the farmers of Western Canada pushed for creation of the CWB because they could see the benefits of marketing their grain together. Today, empowered by this cooperative marketing approach, wheat and barley producers are able to successfully compete, head-to-head, against the largest transnational grain companies in the world.
The $4 billion grain marketing system that has evolved through the CWB is unique in the world. It reflects the agricultural environment faced specifically by western Canadian farmers. It is their marketing system. They receive all its revenue, less about $70 million in annual marketing costs. They control it through the election of 10 farmer-directors on its 15-member board.
The current round of World Trade Organization negotiations will, if a final deal is reached, dictate major changes to the way the CWB operates on behalf of these farmers. It has even put the cornerstone of this system – the single desk – onto the table for negotiation of its future use.
About the WTO
The World Trade Organization (WTO) was set up in 1995 as a forum for international trade negotiations. It is a place where 148 nations (or groups of nations) set the rules that will govern the trading relationships between them. This is an extremely complicated process, given the vast differences between nations in economics, politics and socio-cultural factors. The WTO also handles trade disputes and monitors trade policies.
The current round of negotiations is called the Doha Round. It began in 2001 and is hoped to be concluded by the end of 2006 with a final deal, followed by an implementation period of several years. WTO member governments were to establish "modalities" or targets for the agricultural negotiations by March 31, 2003. Agricultural issues, however, are contentious and this has still not occurred. There were hopes for a modalities agreement to be reached at a December 2005 Ministerial meeting in Hong Kong. Expectations have since been lowered and April 2006 is a more realistic deadline.
The framework agreement
A framework agreement, which encompasses the broad goals of the agricultural talks, was reached on August 1, 2004. It contains language of concern to western Canadian wheat farmers.
The agreement calls for "elimination of trade distorting practices with respect to exporting state trading enterprises (STEs), including eliminating export subsidies provided to or by them, government financing and the underwriting of losses. The issue of the future use of monopoly powers will be subject to future negotiation."
The phrases "government financing and the underwriting of losses" pertain to the Government of Canada guarantees of CWB initial payments and borrowing. "The future use of monopoly powers" pertains to the CWB's single-desk marketing authority.
Ever since this language was proposed, the CWB has argued that it is completely unacceptable. It reflects the position of Canada's biggest wheat competitors in seeking disciplines that would erode the CWB's value to western Canadian farmers.
The language is based on a false premise. The CWB is not trade distorting and uses no export subsidies. The government guarantees should have been categorized, if anything, as domestic support and be subject to the same disciplines that would apply to domestic supports for all WTO members. In singling out STEs in this manner, the agreement puts disproportionate restrictions on the CWB alone.
On the other side of the table, the major issues of U.S. and EU domestic support, U.S. export credit and surplus disposal disguised as food aid have been targeted for reductions and disciplines. However, it is still unclear whether an eventual deal will succeed in creating meaningful changes that would benefit western Canadian farmers.
From the perspective of the CWB and western Canadian farmers, there is no balance to this language. Major, specific concessions have been made that affect Canadian farmers, without knowing exactly what they will get in return.
The CWB's government guarantees
There are three federal government guarantees currently provided to western Canadian farmers through the CWB:
- The initial payment guarantee: a risk management tool that ensures farmers are not financially inconvenienced if the market falls unpredictably. It guarantees that, if final sales return turns out to be below the initial payment made to farmers at the time their grain was delivered, the government will cover the shortfall. This guarantee will be eliminated if a final WTO agreement is reached, which would increase farmers' risk management costs.
- The borrowing guarantee: this allows the CWB to borrow money to conduct farmers' business at rates comparable to what their competitors – the large transnational grain companies – can achieve. These large companies have huge asset bases to achieve top interest rates. The CWB has no assets, since all revenue is returned annually to farmers. This guarantee will be eliminated if a final WTO agreement is reached, which stands to significantly increase CWB (i.e. farmer) borrowing costs.
- The credit sales guarantee: the federal government guarantees wheat and barley export sales that are made on credit, protecting farmers from repayment defaults. In the WTO negotiations, this guarantee is expected to be disciplined in the same manner as export credit used by all member nations.
The single desk
The CWB's single desk is not trade distorting. There is no need for further disciplines.
Not only are current disciplines adequate for ensuring STEs engage in fair trading practices, a WTO panel ruled in 2004 that there is no incentive for the CWB to operate on any other basis than strict commercial considerations – since it is controlled by farmers whose goal is to maximize their own returns. In addition, all existing and future WTO rules governing export subsidies, domestic support and trade remedies apply full to STEs.
The CWB approach
As the WTO strives to negotiate a new trade agreement on agriculture, the CWB has urged members to stay focused on the true causes of global trade distortion.
The CWB believes attention must remain firmly fixed on the big issues such as eliminating export subsidies, disciplining export credit and food aid programs used for market development purposes, and reducing trade distorting domestic support. The CWB is also pushing for rules that could improve access to markets for western Canadian grain. In particular, we need to see U.S. abuse of export credit and food aid programs eliminated. These programs are particularly distorting, as the U.S. uses them to buy market share.
The CWB has been active in its discussions on this important issue with Canadian negotiators, as well as ministers, ambassadors and senior bureaucrats from many key countries. Discussions have included several trips to Geneva and Brussels, most recently in October 2005. CWB representatives will also attend the WTO Ministerial session in Hong Kong, Dec. 13-18, 2005.
It is important that Canadian agricultural groups present a unified front in these discussions. While there are differences of opinion in Western Canada about the CWB's single-desk marketing approach, the best interests of farmers is not served by allowing foreign nations to make decisions that should be made by Prairie farmers themselves.
What happens next
WTO members are trying to reach an agreement on "modalities", which are the specific measures by which each country will live up to its commitments. There is some hope of a final agreement on modalities at the December 2005 Ministerial meeting in Hong Kong, or at least before April 2006.
After that, a final agreement would be negotiated that contains all the relevant details. This could take another year or more.
That would be followed by an implementation period, which in the past has seen changes phased in over five to seven years.
A WTO agreement is important
Western Canadian farmers need an ambitious outcome from this WTO round. They would benefit from elimination of export subsidies, disciplines on export credit and food aid, reductions in trade-distorting domestic support and gains in market access for their grain.
International traders need rules to guide their dealings. Achieving agreement on the rules is extremely difficult, but all WTO members agree that it is an important goal. Without rules, the proverbial "rule of the jungle" would apply – which is not in any country's best interests.