New Zealand targets supply management system to gain better access to Canadian dairy market

The Canadian dairy industry will soon be defending a new front in its ongoing struggle to preserve its supply management system in the face of the challenges of international trade.

On Thursday, New Zealand Minister for Trade and Export Growth Damien O’Connor announced that his government had initiated dispute settlement proceedings under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). . It is the first time that consultations have been launched in an attempt to resolve differences between signatories to the eight-member Pacific Rim trading bloc.

The CPTPP came into force at the end of 2018, with Canada and New Zealand among its original six members. New Zealand is an aggressive global dairy exporter, which puts it on a collision course with Canada’s relatively closed domestic market both during initial negotiations and as the deal has been finalized. implemented.

“Our priority is to ensure that New Zealand exporters have meaningful access to the benefits negotiated under the CPTPP and that all parties meet the commitments they have made to each other under the CPTPP. the deal,” O’Connor said in a statement.

While New Zealand’s relationship with Canada is “excellent”, the minister said, the two countries have been engaged on this issue “for a number of years and it will come as no surprise to them.

“Sometimes even good friends disagree, and it is for this reason that dispute resolution mechanisms in free trade agreements such as the CPTPP exist to provide a neutral forum to resolve such disputes. when they arise,” O’Connor said.

The federal government and International Trade Minister Mary Ng have seven days to respond to New Zealand’s dispute resolution request. (Blair Gable/Reuters)

Canada was notified on Thursday, according to the New Zealand government statement. Canada has seven days to respond, after which the two countries will begin formal consultations. If they fail to resolve their disputes, New Zealand may request a panel to adjudicate the dispute, according to the provisions of Chapter 28 of the agreement.

International Trade Minister Mary Ng’s office did not immediately respond to a CBC News request for comment.

Latest in a series of disputes

This is not the first time that Canada’s dairy import control system has been targeted by trading partners and criticized as unfairly protectionist. Similar issues emerged with cheese imports under the Comprehensive Economic and Trade Agreement with the European Union, although so far no formal arbitration has been required.

To stabilize domestic prices and maintain a constant domestic supply of cow’s milk and other processed dairy products, the federal government uses prohibitive tariffs to discourage any imports beyond the minimum levels required by the World Trade Organization and trade agreements. negotiated with specific partners.

The CPTPP guaranteed member countries a specific amount of duty-free access to the Canadian market in 20 different categories of dairy, egg and poultry products — all sectors that are part of Canada’s supply management system. .

In order to import these named products duty-free, interested companies must apply to Global Affairs Canada for a share of the annual quota for the specific product. The ultimate decision on who holds the quota for any given year rests with the Minister of Trade.

Less than a month before the entry into force of the CPTPP, the Liberal government announced it would allocate between 80 and 90 percent of import licenses to domestic dairy processors, with a much smaller share reserved for dairy distributors. Food retailers – companies that import and sell food products directly to consumers – have been excluded entirely.

Damien O’Connor, New Zealand’s minister for trade and export growth, said his country’s relationship with Canada remained “excellent” despite their problems with the dairy trade. (Nick Perry/AP)

For the Canadian dairy sector, it was a form of compensation for the market share it risked losing to foreign competitors. According to industry spokespersons, processors already active in the market would be in the best position to know what kind of complementary foreign imports could fill the gaps in the market for consumers.

Retailers, not to mention foreign producers, have cried foul, pointing out that domestic processors have no incentive to import goods that compete with their own. They warned that Canada may not import as many foreign dairy products as the deal specifies, although the federal government has put rules in place to supposedly prevent importers from requesting but not fully exercising their right to import duty free.

Fill rates suggest unused quota

Import data published on the Global Affairs website suggests that New Zealand’s concerns could be based, at least for some products. Although Canada was close to importing the full quota for butter negotiated under the CPTPP last year, data for cheese and other goods show a much larger gap between what was negotiated at the negotiating table and what was achieved at the border.

These data do not specify how many of these imports originated from New Zealand. Decisions on what to import from which CPTPP countries rests with the import license holder. The other major dairy exporter among the current CPTPP partners is Australia.

Quota volumes set for CPTPP partners predate the US exit from the deal following the election of former US President Donald Trump and the subsequent renegotiation of the North American Free Trade Agreement (NAFTA), under which the United States also successfully negotiated duty-free access to the Canadian dairy market in a long list of product categories.

Once the Americans left, all CPTPP categories, which include fresh produce, did not remain practical and competitive for more distant producers, especially after international shipping was impacted during the COVID-19 pandemic and remains significantly more expensive as supply chains continue. to tend amid disruptive geopolitical events like the war in Ukraine.

The UK is in the early stages of talks to join the CPTPP in the future. Depending on how these accession negotiations progress, the UK could compete for this market share in the future.

Thursday’s challenge shows New Zealand have not forgotten their grievances. And he can see new impetus for his side of the argument, following a decision of a panel established under the Canada-United States-Mexico AgreementCUSMA, the successor agreement to NAFTA, which concluded that Canada’s administration of similar import licenses was not consistent with what the Americans believed they had signed into the renegotiation of the NAFTA.

Early March, Canada has announced changes to its CUSMA quota allocation policies, eliminating the CPU-only pool. However, the CUSMA panel ruling upheld the right of the Minister of Trade to make the final decision. The ultimate implications of these changes remain unclear.

The United States, for its part, still seems skeptical.

During a visit to Ottawa last week, U.S. Trade Representative Katherine Tai called problems accessing the Canadian dairy market “source of great frustrationWhile she and Ng are still “discussing and debating the details of how we might make progress,” Tai said, “it’s been a sticky issue for decades, that’s for sure.”

More compensation to come

The Canadian dairy industry remains bitter that it had to suffer a succession of blows in its market for Canada to land several subsequent trade agreements under the Liberals. In exchange for these hits for the team, they demanded compensation from Canadian taxpayers.

In addition to benefits from how import licenses are allocated, Canadian farmers receive up to $1.75 billion in direct payments in the first four years of the CPTPP and the agreement. Canada’s trade with the European Union. The owner of a farm with 80 dairy cows, for example, received approximately $38,000 a year.

The 2021 federal budget also established a $292.5 million investment fund for domestic dairy processors to help them compete.

Finance Minister Chrystia Freeland said in her spring budget that her department will include additional national dairy sector compensation for CUSMA losses in next fall’s economic statement.

Mathieu Frigon, president of the Dairy Processors Association of Canada, told CBC News he is aware of New Zealand’s request for consultations and that his organization is committed to working collaboratively with the government. federal “to defend our nation’s ability to design and implement TRQ allocation mechanisms that meet its trade obligations and support its domestic production.”