What's Trade Got to Do With It?
An effective supply management system requires the ability to determine supply from all sources, domestic as well as international. In order to be sustainable, the supply management system relies on three pillars: import controls, production discipline, and producer pricing. Import controls are essential to maintaining the stability of supply in Canada – it ensures that Canadian market demand for chicken is primarily met by Canadian farmers.
The volume of chicken imported into Canada is controlled by Tariff Rate Quotas (TRQs), which allow a calculated volume – or “quota” – of chicken to enter Canada with little or no tariff and higher tariffs for volumes exceeding said quotas. Combined with domestic production discipline – which discourages under- and over-production – TRQs ensure that there are no shortfalls or surges in the chicken supply, keeping prices stable and predictable. Finally, the system contains mechanisms that provide farmers with a fair and stable return for their product, keeping chicken farming sustainable.
What is a TRQ?
Tariff rate quotas set limits to the amount of chicken allowed into Canada with little or no tariff. As a signatory to the WTO Agreement on Agriculture – which came into effect on January 1, 1995 – Canada converted its existing agricultural quantitative import controls to a system of TRQs. TRQs were designed to offer some level of protection to countries’ sensitive agriculture sectors. Canada operates 21 of the world’s 1,425 TRQs, while the United States has 54 and the European Union has 87.
Under these TRQs, imports are subject to low “within access commitment” rates of duty up to a predetermined limit. Canada allows more than double its WTO commitment of 39,843,700 kilograms through its North American Free Trade Agreement (NAFTA) commitment, which is 7.5% of its previous year’s production. Unrestricted imports in excess of this limit are subject to significantly higher “over access commitment” rates of duty.
To demonstrate this system for chicken, the TRQ level for 2013 was set at 77.7 Mkg, representing 7.5% of the amount of chicken produced in Canada the year before. Imports up to 77.7 Mkg can then be imported with either a very small tariff or none whatsoever. Imports originating from the US pay 0% tariff because of the NAFTA and imports from other WTO members are subject to a tariff of 5.4% because of the WTO. All imports above the 77.7 Mkg limit are subject to a tariff of 238% (whole chicken) regardless of their origin, which would make imports significantly less appealing under normal circumstances.
The department of Foreign Affairs, Trade and Development (DFATD) plays a very important role in operating the TRQ system in Canada. They allocate the privilege to import at the “within access commitment” rates of duty to firms by issuing import allocations – or “import quotas” – as long as the firms meet the necessary terms and conditions. The Tariff Quota Advisory Committee (TQAC) was mandated to provide advice to the Minister of International Trade on the administration of the TRQ allocation system. The committee is comprised of CFC, CHEP and industry stakeholders (represented by CPEPC, FPPAC, CRFA, CARI, FPC, and NFDA) and government officials from several departments.
Chicken products not covered by the TRQ (Non-Import Control List products):
- Chicken meat products containing 13% or more other products (HS Chapter 16); e.g., TV dinners, entrees (“specially defined mixtures”) – those are products with 87% or less chicken.
- Food preparation containing less than 20% chicken (HS Chapters 19, 20 & 21); e.g., meat pies, soups, egg rolls, etc.
Allocation of the TRQ
Import quotas – in this 2013 example – are allocated to 566 Canadian companies that meet criteria in one of five pools: traditional, processors, foodservice, distributors, and non-import control list (non-ICL) products. The traditional pool receives its fixed quantity (20.9 Mkgs). The processor, distributor and foodservice pools are allocated 37.1% (processors: 62.6%, distributors: 26.8%, foodservice: 10.6%). The non-ICL pool receives its full requirements through the volume remaining in the regular allocation, special reserves, the market development policy and the supplementary imports to complete allocation.
Companies qualifying as both processors and distributors are allowed to apply under both pools but only receive one allocation; related or affiliated companies are only eligible for one allocation as well. Companies that use less than 90% of their allocation in any year have their allocation in the next year reduced to their actual level of use.
Supplementary Import Permits
The Minister of International Trade can authorize the importation of quantities of chicken and chicken products in excess of the import access quantity if they judge that it’s necessary to help meet Canadian demand. There are four categories of supplementary permits, and each category is subject to different conditions and procedures outlined below.
1. Supplementary imports for market shortages
Applications for supplementary imports to meet market shortages must meet the whole bird substitution policy, whereby market shortages are assessed in terms of the domestic industry’s supply and demand situation, based on production for the whole bird market. Applications for poultry parts are authorized only when there is a shortage of whole birds. Supplementary imports of parts when whole birds are available would interfere with the adjustment mechanisms in the market.
2. Supplementary imports to import chicken for the manufacturing of products exempt from the Import Control List (import to compete)
Manufacturers having an import allocation for processing of chicken products that are not on the Import Control List (ICL), referred to as “FTA quota”, are required to have exhausted all of their FTA quota allocation for the year before supplemental import permits may be issued under this provision.
Manufacturers importing chicken under this provision must substantiate that the chicken imported is used to produce products exempt from the ICL.
3. Supplementary imports to import chicken and chicken products for further processing and re-export (import to re-export)
All products manufactured from the imported chicken products must be exported within a period of three months from the date of issuance of the import permit.
The applicant must provide DFATD with copies of the import documents, including a CFIA inspection certificate for each import, document the use of imported chicken in the production of the exported product, and provide the export shipping documents. Failure to supply the documents may disqualify an applicant for additional import to re-export permits.
4. Supplementary imports to import chicken and chicken products for the purpose of test marketing
Import permits supplementary to the annual TRQ may be issued to facilitate the test marketing of new products that are unique or are produced with unique processes and require a substantial capital investment for their production. Companies that intend to do test marketing on a specific product must normally plan the activity within their annual TRQ allocations. Companies having a basic quota allocation must exhaust this allocation before supplementary imports may be issued under this provision. The supplementary import permits are only available to firms that market product directly to consumers. Companies are required to commence production in Canada as soon as feasible after the successful completion of the test marketing program.