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Backgrounder: WTO issues for western Canadian wheat and barley producers

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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 farmers. Canada has agreed to give up significant and valuable benefits for farmers: government guarantees of initial payments for wheat, durum and barley; and government guarantees on borrowings. Now, the negotiating text targets the CWB marketing system for elimination. If it is passed, the CWB as it is today will no longer exist.

The CWB's position is that western Canadian farmers should be the ones to decide the marketing structure for their wheat, durum and barley, not their competitors. The main instigators of pressure on CWB at the WTO are the United States and Europe.

The WTO

The World Trade Organization (WTO) was set up in 1995 as a forum for international trade negotiations. It is a place where 153 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 among 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 Development Round. It was launched in Doha, Qatar in 2001. Initially negotiators hoped to conclude the negotiating phase by the end of 2006. Concessions would be implemented over a period of several years. Once agreed, member countries must ratify and implement an agreement.

Click here to see a complete timeline of negotiations.

What's at stake?

A number of modalities (the form of the commitments that countries will undertake) have been produced since this round of negotiations began.

The latest modalities, released in December 2008, exclusively single out and target the CWB marketing structure for elimination. The brackets were removed around the line prohibiting “the use of export monopoly powers” of agricultural exporting State Trading Enterprises (STEs). The CWB is notified to the WTO as a STE. Footnoted language was added providing an exemption to the only other remaining export STE in the developed world – New Zealand's kiwi fruit exporter, Zespri. Under special and differential treatment, developing countries would be permitted to maintain export monopoly powers for STEs provided that they meet a set of established criteria.

The Government of Canada hasn't accepted this change. It continues to maintain its position that decisions regarding the future of single-desk marketing belong in Canada.

If a final deal is reached, the WTO negotiations have serious implications for the grain farmers of Western Canada. The December 2008 text would eliminate:

• federal government guarantees of CWB payments to farmers
• federal government guarantees on CWB borrowings
• Canadian farmers' right to choose the marketing system for their wheat, durum and barley

The proposed benefits are minimal. Western Canadian wheat, durum and barley producers are being asked to make huge concessions and, in exchange, they would receive no tangible improvements in market access or significant reductions in current domestic support spending levels of key competitors.

The CWB's government guarantees

There are three federal government guarantees currently provided to western Canadian farmers through the CWB:

• The initial payment guarantee: This risk-management tool ensures that if the market falls unpredictably and final sales returns turn 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. This would increase farmers' risk management costs.
• The borrowing guarantee: This allows the CWB to borrow money to conduct farmers' business at favourable rates. The CWB does not retain capital and has no assets, since all revenue is returned annually to farmers. A large capital base would be needed to be able to borrow in the market place. Even then, this would be much more costly than it is today. The borrowing guarantee will be eliminated if a final WTO agreement is reached. It is a significant concession to give up this guarantee.
• 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, so there is no need for further disciplines.

This has been established by 14 unsuccessful trade challenges and investigations against the CWB, all initiated by the United States. Each ruled that the CWB does not distort international trade and behaves in accordance with commercial considerations. 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.

Key points:

• The decision on the future of the CWB marketing structure belongs to the wheat and barley producers of Western Canada. 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.
• Western Canadian farmers stand to lose their government guarantees of both initial payments and CWB borrowings. Further concessions are not warranted.
• 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 current negotiation text will not substantially improve market access for western Canadian wheat and barley. The proposed tariff reduction applies to bound tariffs – which are ceilings or limits, and not applied rates. Therefore, the change does not appreciably reduce the applied rates faced by our grains.
• International grain markets are distorted by the domestic subsidies of Canada's major competitors. The CWB has regularly advocated for real reductions in trade-distorting subsidies. The current text makes special allowances for the U.S. to maintain its current subsidy system.
• The negotiation text continues to allow for the misuse of export credit and food aid through exceptions that favour the United States.

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 has consistently advocated for a good deal for western Canadian grain farmers which includes an elimination of export subsidies, meaningful reductions in tariffs for wheat, durum and barley and an end to trade-distorting practices prevalent in the U.S. and the EU. U.S. abuse of export credit and food aid programs must be eliminated. These programs are particularly distorting, as the U.S. uses them to buy market share.

At this juncture in the talks, the December modalities don't represent a good deal for western Canadian grain farmers. The CWB has called on the Government of Canada to maintain its negotiating position that decisions on the future of the CWB marketing structure belong in Canada, and to ensure this right stays in Canada.

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 November 2009. We have been active in discussing the issues with the various stakeholders involved. It is important that Canadian agricultural groups present a unified front in these discussions. The majority of Prairie farmers support the position that the future of the CWB marketing structure belongs to them and that their best interests are not served by allowing other nations to make these decisions.

To become involved on the issue, visit our Take Action page.