GLOBAL ECONOMICS



Kathleen Macmillan and Patrick Grady

Finally Time for Agriculture

from Seattle and Beyond: the WTO Millenium Round (1999), Chapter 3.

The Stakes are High

Negotiators at the Uruguay Round left a couple of land mines embedded in the WTO Agreements for those who would dare to follow in their footsteps. The most explosive of these is the requirement to undertake negotiations on agricultural trade before the year 2000. Not wanting to rush things, WTO Members are waiting to the dying days of the century to comply with this commitment.

In spite of the valiant efforts of scores of trade negotiators over the decades, agriculture has remained largely outside the multilateral trading system. Now the discrepancy between how trade in industrial goods and trade in agriculture is treated in the WTO Agreements has become rather too embarrassing to ignore. It stands as a painful reminder of our negotiating infallibility. What's more, it is something that the developing world will tolerate for only so long. Negotiators at the Millennium Round need to come to grips with domestic farm policies and renew attempts to inflict a stronger rules-based system on agricultural trade.

Agriculture almost scuttled the Uruguay Round and is certain to generate some tense moments in the upcoming set of negotiations. But there is reason to believe that the time might be ripe to make serious progress. Agricultural prices have generally rallied since the Uruguay Round. While governments are still pursuing misguided domestic policies, some of the worst lunacy has been curbed. Although a series of trade disputes means their relationship is far from cozy, at least the US and EU are not deep in the midst of a trade war over agriculture, as they were back in the late 1980s. They might therefore be more disposed to constructive compromise.

Canada has a huge stake in the negotiation of clear rules for agricultural trade. Our abundant land and advantageous climate give us a natural advantage in certain types of production, notably grains, oilseeds and red meat. However, we do not have the financial resources to compete against the treasuries of Europe and the United States. As a result of decades of profligate subsidization, agricultural markets are in disarray. For many commodities, world market prices bear little relation to the cost of production and do not correspond to the price paid in any domestic market. Rather, they are the result of food surpluses dumped by countries that maintain impenetrable import barriers. Until some discipline is imposed on domestic agricultural policies, it is unrealistic to expect farmers to earn their living solely on the basis of world market prices that are both depressed and highly unstable.

The Context

Nobody said that this was going to easy. Agriculture policy is exceedingly complex and multi-faceted. It extends to areas quite remote from traditional farming considerations to environmental and regulatory matters, to marketing arrangements, to biotechnology, food security, animal welfare and rural development.

Countries care deeply about their farm sectors. This is true even in developed countries where farmers can account for less than five percent of the work force. Looking at it rationally, it makes little sense to subsidize and protect our agriculture sectors the way governments do, particularly if foreigners are silly enough to practically give surplus food away on world markets. Taxpayers would not tolerate it if we ran our industrial sectors this way. But farming is different. It can be less a job than a way of life. Commuters on autoroutes like looking out at small, picturesque farms as they speed along. It does not occur to the Japanese business man, golf fanatic that he is, that he would be a lot better off if some of his country's inefficient rice farms were turned into 18-hole paradises. Whatever the rationale some combination of concerns over food security, respect for rural lifestyle and values, regional development considerations our feelings about agriculture are very deep-seated and complicated. This is why agricultural trade has been so terribly hard to liberalize.

Farming, among the oldest of the professions, has undergone a remarkable transformation in recent years. Technology has vastly increased yields and changed the nature of production. Technological change has affected all facets of the industry improvements in seed varieties, pest control, fertilizers, antibiotic and other disease treatments in animals, genetic research, harvesting techniques, food transportation and distribution. While food output has grown sharply, market growth has been slow. The result has been mounting production surpluses and a stubborn reluctance on the part of governments to address the issue.

Progress on the agricultural trade file is complicated by the fact that no one has clean hands. This is certainly true of the developed country members of the WTO. We all have our sacred cows. In Canada, our dairy sector is highly protected along with poultry and egg producers. The sacred cow in Japan and in Korea is rice farming; in the United States it is the sugar and peanut sectors; and in Europe virtually everything that grows is sacred. This means that none of the Quad members, those who have taken a leadership role on other areas of trade liberalization, can advocate reform with any credibility.

Consider Canada's position on the agriculture negotiations, for example. We want free trade in the cereals sector but are unwilling to compromise on our support to the supply-managed sectors like dairy and poultry. At best, the message we are giving is mixed.

The stalemate has come at a considerable cost. Agriculture has not shared the huge benefits that have accompanied the expansion in world trade. Canada is a case in point. Our industrial exports have grown astronomically over the past decade while net farm income has been in free fall. Farm income levels in the Prairies are hovering around the 1930s level. Critics of the multilateral trade agreement maintain that this is proof positive that trade agreements do not work. However, any one familiar with the WTO Agreements could tell them that the farm sector has yet to give liberalized trade an honest chance.

The Uruguay Round Agreement on Agriculture

The GATT amounted to little more than a hill of beans for the agriculture sector. The few rules that did exist were poorly disguised attempts to rationalize the trade distorting agricultural policies of developed countries. GATT provided exemptions for this and exceptions for that with the result that governments had a virtual carte blanche to do whatever they pleased. While the Uruguay Round can hardly be accused of liberalizing world trade in agriculture, it at least attempted to codify agriculture policy measures and impose a framework on the system, reducing support measures modestly in the process. It remains for the Millennium Round to take the structure established in the last round and begin the painful process of trade liberalization.

The WTO Agreement on Agriculture accomplished three basic things. The first is that it called on members to convert a host of non-tariff barriers such as import quotas, voluntary export restraints, variable import levies and minimum prices into bound tariffs. Some of these tariffs ended up to be shamefully high, but at least they are visible and can be more easily addressed in future sets of negotiations. Some examples are the 300 percent tariff Canada imposes on butter imports, the 550 percent imposed on rice imports into Japan, the EU's 215 percent tariff on frozen beef and the 179 percent tariff imposed on sweet powdered milk imports to the United States. Members must cut the high ex-quota tariffs by an unweighted average of 36 percent between 1996 and 2000.

Chart 5 summarizes the results of tariffication for selected developed countries.


Effect of Tariffication for Selected OECD Countries' MFN Rate in 1996

As part of the "tariffication" exercise, members also had to provide imports access to a certain percentage of their market. This minimum access commitment applied to 3 percent of the importer's market, rising to 5 percent. "Within access" tariffs can be applied by the importing country. In the case of fluid milk imported to Canada, for example, the "within access" tariff rate is 17.5 percent while the "ex-quota" tariff rate is 284 percent.

In actual fact, neither the minimum access nor tariff reduction requirements have caused farmers to lose much sleep. The minimum access commitments are very small. A one-third reduction in an astronomical tariff still leaves an astronomical tariff. Various loopholes in the tariff reduction requirements permit countries to cut more deeply in some sectors and reduce others by only 15 percent in order to meet their overall 36 percent Uruguay Round obligation. The same pooling of product categories is permitted in order to meet minimum access requirements. There is still plenty of protection left to go around.

The second thing accomplished in the Uruguay Round was to take some tentative steps in the direction of disciplining export subsidies. The Agreement stops well short of prohibiting them altogether, like it does for export subsidies on industrial goods. Instead, members have agreed not to impose any new farm export subsidies and to cut some existing ones. The Agriculture Agreement lists the type of export subsidies that are subject to the reduction commitments.

Finally, the Uruguay Round tried to make some sense of domestic subsidies. It categorizes domestic support measures into three distinct types the Green, Blue and Amber Boxes and subjects some subsidies to reductions according to a schedule of commitments. Certain programs, notably direct payments to producers and income support measures, are not affected by the reduction commitments.

Sanitary and Phyto-Sanitary Measures

It's easy to spot the authentic trade policy wonks. They are the ones who use the term "sanitary and phyto-sanitary" in cocktail party conversations and even appear to understand what it means.

For those that don't know, sanitary and phyto-sanitary measures are regulations that relate to animal and plant health. Trade policy experts and consumer advocates care deeply about such measures because of their potential to distort world trade. As tariffs and other more conventional types of barriers come down, countries that feel protectionist often resort to technical barriers as a way of restricting imports.

Article 2 of the Agreement on the Application of Sanitary and Phytosanitary Measures asserts the right of Members to establish health and safety standards provided they are based on "sound scientific evidence" and they are administered in a consistent manner. Members are also encouraged to rely on international standards whenever possible.

While this both sensible and fair, administering the Agreement has been quite complicated. Everybody knows that scientists do not always agree. Moreover, countries, like individuals, have vastly different conceptions of what is safe. Imposing one's standards on another, even when accompanied with scientific evidence, is not as easy as it sounds. Consumers confront almost daily stories about things like e-coli, dioxin-contaminated food and mad cow disease. Carried away by fear, they pressure their governments to impose higher standards on food safety than might be justified by hard scientific evidence.

All the challenges associated with sanitary and phyto-sanitary standards were played out with vigour in the recent WTO case over beef hormones. The 10-year old EU ban on imports of beef treated with growth enhancing hormones was successfully challenged at the WTO by the United States and Canada. The EU reaction to the case can only be described as one of denial. It has refused to comply with the WTO panel and appellate body decision. The WTO, in turn, has permitted the US and Canada to suspend trade privileges on imports from the EU worth $US124 million.

The six hormones at issue are considered safe by the US Food and Drug Administration and by the JECFA, a joint committee of the World Health Organisation and the Food and Agriculture Organisation. However, the EU argues that the hormones are often wrongly implanted and can end up excreting higher than safe levels. It also maintains that accurate tests have yet to be developed to detect some of the most dangerous toxins associated with the hormones. In the meantime, it has sponsored a series of new risk assessment studies and is awaiting the outcome of 17 ongoing studies before deciding how to respond to the panel's decision.

The issue of sanitary and phyto-sanitary measures is one of the thorniest facing negotiators in the upcoming round. The challenge promises to get even more complicated with the promotion of genetically modified organisms by companies like Monsanto. Resistence to food made from genetically modified crops is particularly strong in Europe. Among the events scheduled for Seattle is an antibiotech "teach-in" aimed at trade policy officials.

On one side of the negotiating issue are countries like Canada and the United States that favour a science-based approach. Canada's position is understandable in light of our experience. Canadian exporters have faced a battery of foreign restrictions ranging from bans on canola and beef sales to Europe, salmon and pork exports to Australia and bottled water exports to South Korea. Stronger disciplines in this area would reduce the potential for arbitrary and discriminatory impediments to trade.

The EU position is that WTO rules are inadequate for regulating genetically modified organisms and hormones. It would like to see more recognition of the precautionary principle that would permit restrictions provided the scientific evidence does not rule out the possibility of a risk to safety or health. In Europe's view, current WTO rules place too much onus on the country with the safety concern to justify its trade restriction. In the end, negotiators will have to maneouvre between two quite different perspectives: that consumer concerns should prevail or that scientific evidence should be the determining factor in deciding whether restrictions are warranted.

There are no easy solutions mostly because there is very little common ground. Labeling can paper over some concerns, but only when the importing country concedes that safety is not a real threat. The EU ruled out the labeling option in the hormones case, for example.

The WTO might have to give some credence to the concerns of consumers and non-governmental organizations over food safety. After all, having important WTO members like the EU refusing to comply with WTO decisions respecting sanitary and phyto-sanitary standards is a blow to the multilateral trading system. At the same time, negotiators must resist pressures to abandon scientific principles entirely. Member governments have to do a better job of promoting the scientific model within their own food regulatory agencies and engendering consumer confidence in it. Countries need to be encouraged to harmonize their standards and rely on international standards as much as possible. This argues for better institutions to conduct basic research in the area, share findings and develop scientific consensus. Another answer might be to create an international scientific body that would operate at an arm's length from governments and provide advice to domestic regulatory agencies and WTO panels.

Issues of biotechnology and food safety impinge heavily on national sovereignty. Pushing too hard and fast in this highly emotional area will only weaken support for trade liberalization generally. The basic axiom should be that more information is better than less. If consumers are properly informed, they will make the right choices. Ultimately, this is in the best interests of food producers and food consumers alike.

Market Access

The Uruguay Round made agricultural import barriers far more visible. However, the Agreement called for only cursory reductions in these barriers. It is now up to negotiators in the Millennium Round to begin the difficult process of cutting tariffs and expanding market access.

There are various options for cutting tariffs, ranging from across-the-board cuts, zero-for-zero offers or graduated reductions that would affect higher tariffs more deeply. Chances are that some hybrid approach will be necessary. An overriding objective must be to ensure that the most protected sectors face meaningful reductions. The huge triple-digit tariffs should be addressed with a vengeance. U.S. sugar beet and sugar cane growers, Japanese rice farmers and Canadian dairy producers should all feel a little less comfortable when the Round is over.

As part of the tariff reduction exercise, the special safeguard mechanism will have to be reassessed. Currently, where ex-quota imports increase, a special safeguard can be invoked to block the imports. The trigger thresholds both price and volume for initiating the safeguards are easily attained. They should be made stricter in the next round of negotiations.

This means a balanced approach to tariff reduction and market access expansion. It should no longer be possible for countries to shield their most sensitive sectors from foreign competition by pooling their market access commitments into broad categories and selectively improving access within the category.

The market access loophole created in Uruguay Round is illustrated by the example of the sugar imports to the United States. In meeting its Uruguay Round market access commitment, the United States provides raw sugar imports access to some 15 percent of its market. However, imports of refined sugar, the more value-added product, is restricted to a mere 0.2 percent of the market. Because the access commitment is for a broad product category, the U.S. maintains that it has complied with its WTO commitment. Fortunately for its sugar refiners, and unfortunately for ours, it has hardly done so in an even-handed fashion.

An obvious solution is to require separate market access commitments for each distinct product. These would be based on the size of the importing country's market for individual products. In Canada's case, this would no longer mean an overall import quota for cheese but separate access for Cheddar, Brie, Emmental and other varieties.

In addition to requiring separate market access commitments for individual products, these commitments should be expanded in the next round. A minimum initial level of 5 per cent of the market and a doubling to 10 per cent over the next five years is a reasonable objective for negotiators. It goes without saying that countries might have to adjust "within quota" tariff rates to ensure that their new minimum access commitments can be met.

Export Subsidies

The Cairns Group has operated as the moral conscience of the agricultural trading world for over a decade. The group represents 15 agricultural exporting nations, including Australia, Brazil, Canada, Chile, and South Africa but conspicuously not the United States or European Union. In its latest meeting of members, the Cairns Group calls for the complete elimination of export subsidies in the next round of negotiations.

It is a bit of a chicken and egg scenario. Countries will be unwilling to abandon export subsidies unless they are sure that world markets will provide farm producers a decent return. However, an improvement in prices and market stability depend on the elimination of the highly distorting export subsidies.

Fortunately, the always interesting internal dynamic of the European Union might give agricultural trade negotiations a boost. The cost to Brussels of providing subsidies to all members in an ever-enlarging European Union is proving increasingly hard to bear. Questions are also being asked about why farmers are entitled to exactly the same levels of financial support, irrespective of whether they live in Portugal, Britain or France. Pressures to "nationalize" Europe's Common Agricultural Policy could give Millennium Round negotiators the opportunity they need to achieve an agreement to phase out export subsidies.

Care will have to be taken to ensure that other types of support are not used as a replacement for export subsidies. Better rules might be necessary, for example, concerning the use of export credit, guarantee and assistance programmes.

Supporting Farmers in Ways that Do Not Distort World Markets

Elsewhere in the WTO Agreements, the symbol of coloured traffic lights are used to denote subsidy categories. To make things complicated, the Agriculture Agreement uses coloured boxes.

Green Box subsidies have little or no trade-distorting effects. Included in this category are such things as advisory and marketing services and farm support programmes that are "decoupled" from production in that payments are not contingent on production levels. Green box subsidies cannot be challenged by foreign governments and do not have to be reduced.

The Blue Box subsidies category was created in a last-ditch effort to salvage agriculture negotiations during the Uruguay Round. US and EU direct payment programmes fall into the Blue Box category. Somewhat to the consternation of other countries, blue box subsidies do not have to be reduced as part of the overall subsidy reduction commitments.

The final category is the Amber Box. Amber box subsidies can cause distortions to trade and are subject to reduction commitments.

Since the Uruguay Round, WTO members have made a concerted effort to operate domestic support programmes in a manner consistent with Green Box principles. Programmes have gradually been shifting from price supports and per unit or per acre subsidies towards crop and income insurance plans. The newer breed of subsidy programs are more akin to stabilization schemes and are occasionally tied to the use of responsible environmental practices. The fact that financial assistance is better targeted and is independent of production levels has reduced trade distortions and improved agricultural markets. Even the United States and European Union have implemented farm support packages that appear to be quite compatible with many of the Green Box conditions. While progress has been made, there is still much more to be accomplished.

Millennium Round negotiators should strive to eliminate the Blue Box category, thereby opening the trade distorting domestic support programmes of the US and EU to the possibility of trade challenge and subsidy reduction commitments. The EU is certain to resist this attempt, claiming that its producers are entitled to additional protection because of the higher standards of food and environmental safety they observe. Other countries should not be dissuaded by Europe's argument, however. Even if it were true that Europe's farmers are more concerned with health and environmental matters, they can always be rewarded with decoupled subsidies that do not distort world trade.

As with market access, negotiators will have to be vigilant to ensure that subsidy reductions are accomplished in a balanced fashion. Up until now, countries have been able to comply with the letter of their commitment but ignore the spirit by reducing some subsidies but keeping others high. Reduction commitments need to be made on a disaggregated basis to ensure that all sectors are brought into the multilateral trading system.

Managing Supply Management

Supply management is unquestionably the single hardest issue facing Canada's agricultural trade negotiating team. It is certainly the one that will get them into the biggest heat back home. Accustomed as our negotiators are to championing the cause of freer trade, having to switch sides and fight to shield our dairy, chicken and egg sector from foreign competition, all the while keeping a straight face, cannot be an easy task.

In truth, Canada's supply management system is hardly the worst example of agricultural protectionism in action. It does result in higher consumer costs but Canada's food prices are amongst the lowest in the world and significantly lower than those in Europe. Proponents of supply management maintain that it results in stable and predictable markets that benefit both producers and consumers. What's more, it accomplishes this without bleeding the government treasury dry. Unlike the US sugar or European grain programmes, Canada's supply management system controls production and generates only minimal food surpluses. Hence, it is not nearly as trade distorting as other types of agricultural support.

The difficulty with Canada's supply management system is that it has to severely restrict imports in order to work. Otherwise, lower import prices would undermine the much higher domestic support prices. The second problem with supply management is that it is rather insidious. To maintain high domestic price levels, a host of substitute products, processed products and generally related products have to be regulated too. For example, margarine has to be on the import control list or the high domestic butter prices would seem out of wack. The list of dairy blends that are subject to import restrictions grows by the day, along with the ingenuity of American processors for developing new recipes using powdered milk. Frozen pizza makers, chicken pot pie producers and other food manufacturers dependent on supply managed products all have to be taken care of to ensure that they stay competitive with foreign producers who use much cheaper food inputs.

An example of the kind of trouble we have created for ourselves is illustrated by the American and New Zealand WTO challenge to Canada's milk pricing system. The Canadian system works by guaranteeing milk producers a high price for milk they sell to the domestic market, provided they do not produce more than their production quota. Farmers can produce more than the quota amount and sell it on world markets but only at the considerably lower world price. Canadian food processors are allowed to buy industrial milk at the lower world market price for production that they are intending to export. The rationale is that they would not be able to compete against foreign processors if they had to pay the high domestic prices for their milk requirements.

In the opinion of the WTO panel, Canada's two-tiered pricing system amounts to an export subsidy to dairy processors. A recent WTO appellate body ruling upheld the panel's view. While it should be fairly easy to change the milk pricing system to comply with this particular WTO ruling, it should give us reason to reflect on the future of supply management.

There are good made-in-Canada arguments for reforming the supply management system. It rigidly controls production and restricts internal trade with the result that farms are probably smaller and less efficient than they would otherwise be. The more stringent the restrictions are, the more valuable the production quota becomes to those who hold it. Quota-holders have a huge stake in perpetuating the status quo and are willing to fight hard to protect it. To make matters even worse, there is a Canadian unity angle. A disproportionate number of Canada's dairy producers live in Quebec. All in all, it is little wonder that governments have been reluctant to take the issue on.

While our supply management system survived the Uruguay Round pretty well intact, it might not be so lucky in the next set of negotiations. There will be pressure to expand market access commitments which, combined with trade challenges to the two-tiered pricing system, could spell the beginning of the end for high domestic support prices.

To date, Canada's response has been to stick its head in the sand. Our government does not want to be even seen to be advancing a position or it would be eaten alive by the supply-management boards and producers. This is unfortunate for a couple of reasons. First, it means we are not able to play a meaningful role in other areas of the agricultural trade agenda where Canada could gain much from better trade disciplines. Second, we also risk being left out in the cold in last-minute deals affecting supply management. We are marginal players in the agriculture trade scene. The real action occurs in the US-EU arena and, to some extent, in the Cairns Group where Australia is particularly active. Our only hope for influencing the outcome to our advantage is to be active and constructive participants from the very outset.

State Trading

Fingers are almost certain to be pointed Canada's way in the next round of trade negotiations over state trading enterprises. State trading enterprises are government-sponsored monopolies engaged in the export or import business. One of the most notorious is the Canadian Wheat Board.

The Canadian Wheat Board has long operated as the sole exporter of Canadian grain. Its scale of operation is thought to give it an advantage in foreign markets over private sellers who deal in smaller quantities. The United States has launched a series of trade challenges at the Wheat Board on the grounds that it secretly subsidizes exports. So far, none of the US challenges have found their mark but it might yet get its way in the Millennium Round.

Given the havoc big export-subsidizers like the United States have inflicted over the years on international grain markets, picking on the Canadian Wheat Board is a bit like the pot calling the kettle black. Sadly for the Board, however, it has some detractors in its own back yard. Many Canadian grain producers are also frustrated at the Board's monopoly power since it prevents them from marketing their grain directly or with private companies.

It is quite likely that negotiators will agree that state trading enterprises should be more transparent. For example, these entities could be required to disclose more details about their revenues and financial dealings. More complete information about their operations would placate the concerns of domestic constituents as well.

Attention in the next negotiating round will also focus on state-sponsored import monopolies like the Canadian Dairy Commission and provincial liquor boards. The concern there is that such bodies act to unfairly restrict imports. Many of the newly acceding WTO members, notably those from former centrally-planned economies, rely heavily on state trading enterprises to handle importation. Over time, the problem should become less urgent as expansions in minimum access requirements loosen their monopoly over imports. In the meantime, they should also have to become more transparent operations.

Going Bananas

The relative absence of rules governing agricultural trade has meant that food fights have figured very prominently in the work of the WTO dispute settlement body. One of the most notorious battles has been over bananas. Not only has the bananas case severely tested the mettle of the WTO's Dispute Settlement Undertaking but it has raised some very complicated questions about preferential trading agreements, development assistance and the compliance provisions of the WTO dispute settlement regime.

The United States, spurred on by three home-grown banana heavy-weights, Dole, Chiquita and Del Monte, successfully challenged the European Union's preferential marketing practices for bananas. The European system is a tangled collection of tariffs and quotas aimed at supporting producers in former colonies in the Africa, Carribean, and Pacific Region (ACP countries). Europe feels duty-bound to protect growers in their former colonies by granting them exclusive access to its market. The United States views bananas as big business and well as strategic politics.

Despite having lost the case, the EU has refused to implement the WTO ruling and bring its practices immediately into compliance. Disagreements within the EU over how to proceed are delaying action. Old colonial powers like France don't want to do anything that will weaken their ties with their banana-producing, former colonies. Countries like Germany that have not had colonies in recent years are more interested in cheaper bananas and avoiding US trade sanctions. In the meantime, while the EU dillydallies, the WTO has granted the United States permission to impose close to $200 million worth of retaliatory tariffs against European imports as compensation.

The European quotas make for bad trade policy and bad development policy. The system results in prices in Europe that are roughly twice U.S. levels. However, little of this extra consumer spending finds its way to banana growers in recipient nations as most is hived away by European importers and wholesalers. Arguably, this money could be much better devoted to direct cash assistance to banana-producing countries. Within the developing nations, the production quotas separate growers into haves and have-nots. Those lucky enough to hold export licenses are substantially better off than their unendowed brethren. As with Canada's system of production and import quotas for supply managed commodities, the banana quotas have fostered a convoluted regime of rent-seeking.

In the end, Europe's former colonies would be far better off with a better WTO deal on agriculture. This is where the EU's precious energy should be devoted.

An Agenda for Action

The Millennium Round will be judged a failure unless meaningful progress is made liberalizing trade in food and food products. It's high time that agriculture gets dragged kicking and screaming into the multilateral trading system. The onus is on the developed world to make this happen and to demonstrate to developing country members that the WTO is an institution that serves their objectives too.

Success will depend on achieving progress in all the critical negotiating areas of market access, reform of domestic support measures, export subsidies and sanitary and phyto-sanitary barriers. Though quite different ways of protecting the farm sector, they are highly interrelated. The danger is that as one area gets subjected to greater trade disciplines, governments could well search out other trade-distorting ways to shore up producers.

It is not too late for Canada to begin to show some leadership on agriculture. We can only talk out of two sides of our mouth for so long. Canadian farmers have a natural advantage in the production of some commodities like oilseeds, grains and red meat. Yet, our ability to participate in world markets is hamstrung by our refusal to engage in discussions over supply management. We should be willing to undertake constructive reforms to our supply management system in exchange for changes to the considerably more egregious farm programmes of our major trading partners. Unless we are willing to go down this path, we take the chance that a solution be foisted on us in the Millennium Round. That is hardly in the best interest of Canadian farmers.