When it comes to dairy products and free trade, Canada wants both sides. New Zealand’s dairy dispute with Canada reveals the ongoing tensions within Canada’s trade agenda.
On 12 May, New Zealand requested consultations with Canada on its administration of dairy tariff quotas, known as TRQs.
TKVs are the reserved amounts of a good that are free from existing tariffs. Canada maintains high tariffs on dairy products to isolate its industry from foreign competition – but TRQs have been exempted from it. These TRQs are divided into different categories, such as butter or milk powders.
Under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), Canada allows other countries to sell their dairy products at low rates at a set amount. The challenge is how to administer these amounts or TRQs. New Zealand maintains that Canada’s administrative methods undermine its CPTPP obligations to free trade between signatories.
The problem for Canada is that New Zealand’s case is strong.
New Zealand’s case against Canada
New Zealand’s trade dispute claims that Canada’s TRQ administration is reducing its market value by understaffing its dairy TRQs. As a result, New Zealand does not get enough of its dairy products to Canada, and the products that Canada does import are of lower value. New Zealand attributes this to Canada’s exclusive “pool” of TRQs to processors.
Since 1995, Canada has administered its TRQs in pools separated by their location in supply chains. For example, 85 percent of Canada’s milk TRQs under the CPTPP are reserved for dairy processors who make products such as cream and dairy powders.
Canada’s TRQ administration is skewed, as the vast majority of dairy products are allocated to processors instead of retailers. This means that the countries that are part of the CPTPP cannot get their products directly on Canadian store shelves.
THE CANADIAN PRESS / Sean Kilpatrick
This is a big problem for a few reasons. First, Canada’s allocation of dairy TRQs makes it harder to maximize what the agreement allows for imports. In other words, it undermines efforts by countries like New Zealand to sell their products in Canada. Early signs seem to indicate that this is the case.
Second, processors are more likely to buy cheaper products than inputs for more expensive goods. For example, an ice cream sandwich is a product made with other – usually cheaper – dairy products. This could mean lost profits for New Zealand producers.
Fortunately for New Zealand’s case, the CPTPP is more thorough than other agreements. It specifies that TRQs “should not be more administratively cumbersome than absolutely necessary.” The agreement adds that countries cannot “allocate any portion of the quota to a producer group” or “restrict access to an allocation to processors.”
Canada previously lost
If Canada loses the panel decision on the matter, it will not be the first time. The United States has successfully submitted a similar request for consultation under the Canada-United States-Mexico Agreement.
The American dispute also identified the Canadian pool as unfair and unfair. Canada has argued that a processor pool does not constitute an award under the agreement. Canada added that the Americans were aware of its TRQ administration and therefore tacitly accepted it.
These arguments could not convince the panel and Canada has yet to comply with this decision. It seems doubtful that Canada would also succeed under CPTPP, as both agreements have similar TRQ provisions.
The better question is why Canada placed him in this position in the first place.
THE CANADIAN PRESS / Ryan Remiorz
Canada’s trade agenda
Since Canada’s first trade agreement, there has been clear tension, because even though Canadian policymakers want free trade, they also want some sectors to be exempt. Canada is not unique to agricultural exception, but it is among the world leaders of this practice.
While early trade agreements navigated this tension, recent agreements have struggled to do the same. Canada’s last three major trade agreements have each granted more access to the Canadian market for foreign dairy producers. In return, Canada offered direct compensation to dairy farmers and processors.
This shift in trade policy comes at a time when free trade is more under scrutiny. While trading partners such as the United States shy away from trade agreements, Canada is moving forward.
It is part of Canada’s new trade strategy, the Inclusive Trade Agenda. This agenda aims to bring to history historically marginalized groups. Women, indigenous peoples and the middle class are among these groups.
Global Affairs Canada adds that “communicating the benefits of trade and investment” is a key objective of the agenda, which seeks to “combat a perception of negative or divergent effects of trade and investment.” But this is more than a perception.
The Inclusive Trade Agenda is as much a substantive trade policy reform as it is a re-branding effort. The agenda communicates Canada’s renewed commitment to free trade.
Selective free trade
The problem is that Canada is selectively embracing economic liberalization. Canada wants free trade only for some aspects of its economy. Canada’s trade policy has been torn between two roads.
There is nothing inherently wrong with isolating the dairy industry from foreign competition. Good arguments can be made in favor of releasing it.
But Canada can no longer have it both sides. Canada cannot concede to dairy and then go back on those commitments while advocating for rule-based agreements.
The contradictions in Canada’s trade agenda have never been so clear. New Zealand’s dispute is a reminder that Canada has to make difficult choices.
Canada can either promote a limited trade agenda with few concessions, or fully embrace liberalization. Trying to do both will not achieve one.
