New Zealand is initiating a formal trade dispute with Canada, accusing the Trudeau government of breaking its promises on dairy imports under the Trans-Pacific Partnership (TPP) agreement.
The move is part of a growing international backlash against what is seen as Canada’s inert adoption of its dairy obligations under recent trade deals in North America, Europe and Asia-Pacific.
Trading partners have historically been critical of the Canadian supply management system, which uses production controls and tariffs to protect domestic dairy farmers. As a concession to these trading partners, Canada has agreed to let some imported cheeses and butters cross the tariff barrier. This tariff-free dairy is known as a tariff quota, or TRQ. These quotas were expanded under the TPP in 2018, as well as under the United States-Mexico-Canada Agreement (USMCA), the pact that replaced the North American Free Trade Agreement in 2020.
The world’s leading dairy exporters, including New Zealand and the United States, welcomed Canada’s concession. But soon they were complaining that Canada had found a loophole in delivering most TRQs to Canadian dairy processors. By doing so, the trading partners argued, Canada ensures that only low-value milk and cheese are brought in and made into higher-value retail products — if processors choose to use the quota.
New Zealand, one of 11 countries in the TPP agreement, said many of its TRQs with Canada were unfulfilled, accounting for about $55 million in lost market access in the agreement’s first two years.
“Domestic Canadian processors are left in the unused quota allocation because, as competitors, they have no interest in giving Canadian consumers or customers the option of accessing high-quality, specialty, and more affordable dairy products from New Zealand,” Malcolm Bailey, President from the Dairy Companies Association of New Zealand, said in a statement cheering the trade dispute.
Canadian Commerce Minister Mary Ng’s office has backed off, saying the government is serious about its commitments under the TPP.
“Canada is a fair trading partner,” spokeswoman Alice Hansen said in an email. “Our government will always stand up for Canada’s dairy industry, farmers and our supply management system. We have consistently said that we will work with the industry and with New Zealand on this issue, and will continue to do so.”
Our government will always stand up for Canada’s dairy industry, farmers and our supply management system.
Alice Hansen, spokesperson for Minister of Commerce Mary Ng
New Zealand filed a formal request for consultations with Canada on May 12, Bloomberg reported. The request marks the first phase of the dispute resolution process set out in the TPP. It is also the first time New Zealand has launched a trade dispute under a free trade agreement, and the first time any party has launched a dispute under the TPP, the New Zealand government said in a press release.
“Our priority is to ensure that New Zealand exporters have meaningful access to the benefits negotiated under the CPTPP,” New Zealand Trade Minister Damien O’Connor said in a statement.
Canada has seven days to respond to New Zealand’s request.
“New Zealand has an excellent relationship with Canada, which is one of our closest partners in the world,” O’Connor said May 12. exist.”
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New Zealand is not the first trading partner to initiate formal proceedings against Canada’s dairy policies. Earlier this year, the United States won a major ruling from a dispute resolution panel that found Canada’s TRQ distribution system in violation of the USMCA. Canada launched a new TRQ system for consultations in March, which US dairy exporters said was merely switching from one protectionist policy to another.
Trade law experts suggested the loss to the US would trigger copying actions from other trading partners under other agreements, which were similarly frustrated with Canada’s dairy tactics. Shortly afterward, New Zealand publicly applauded the decision and called for “significant reform” to Canada’s TRQ system.
In response to these remarks, Global Affairs Canada spokesperson Lama Khodr said that fill rates for TRQs under the TPP are “very high” for key products such as cheese and butter. “Over the past two years the Butter TRQ has been almost completely filled, virtually all of (New Zealand) origin.”