New Zealand targets supply management system to gain better access to Canada’s dairy market

Canada’s dairy industry will soon be championing a new front in its ongoing battle to preserve its supply management system in the face of the challenges of international trade.

On Thursday, New Zealand trade and export minister Damien O’Connor announced that his government has initiated dispute settlement procedures under the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). It is the first time that consultations have been launched in an attempt to resolve differences between signatories of the eight-member Pacific Rim trade bloc.

The CPTPP went into effect in late 2018, with Canada and New Zealand among its six original members. New Zealand is an aggressive global exporter of dairy products, putting it on a collision course with Canada’s relatively closed domestic market, both during the original negotiations and as the agreement was implemented.

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

While New Zealand’s relationship with Canada is “excellent”, the minister said, the two countries have been involved in this issue “over a number of years and these proceedings will not come as a surprise to them.

“Occasionally, even good friends disagree, which is why dispute settlement 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, the New Zealand government statement said. Canada has seven days to respond, after which the two countries will begin formal consultations. If they do not resolve their differences, New Zealand may request a panel to adjudicate the dispute, in accordance with the provisions found in Chapter 28 of the agreement.

The office of International Trade Minister Mary Ng did not immediately respond to a request for comment from CBC News.

Latest in a row of disputes

It is not the first time that the Canadian system of import control of dairy products has been targeted by trading partners and criticized as unfairly protectionist. similar problems emerged with the importation of cheeses under the Comprehensive Economic and Trade Agreement with the European Union, although, until now, formal arbitration has not been necessary.

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

The CPTPP granted member countries a specific amount of tariff-free access to the Canadian market in 20 different categories of dairy, eggs and poultry – all sectors that are part of Canada’s supply management system.

To import these products without tariffs, interested companies must apply to Global Affairs Canada for a portion of the annual quota for the specific merchandise. The final decision on who gets how much quota for a given year rests with the Minister of Commerce.

Less than a month before the CPTPP goes into effect, the liberal government announced it would allocate between 80 and 90 percent of import licenses to domestic dairy processors, with a much smaller share available to dairy distributors. Grocery retailers – companies that directly import and sell food products to consumers – were excluded entirely.

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

For Canada’s dairy industry, it was a form of compensation for the market share they would lose to foreign competitors. Processors already active in the market, industry spokesmen argued, would know better what kind of complementary foreign imports could fill market gaps for consumers.

Retailers, not to mention foreign producers, drew attention, 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 agreement specified, although the federal government has set rules to allegedly 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 may be founded, at least for some products. Although Canada was close to importing the total quota of butter traded on the CPTPP last year, data from cheese and other goods show a much larger gap between what was negotiated at the negotiating table and what was accomplished at the border.

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

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

After Americans left, not all CPTPP categories, which include fresh produce, remained practical and competitive for producers further afield, especially after international shipping took a hit during the COVID-19 pandemic and remains significantly more expensive as that supply chains continue. to struggle amid disruptive geopolitical events like the war in Ukraine.

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

Thursday’s challenge shows that New Zealand has not forgotten its grievances. And you may be seeing a new push for your side of the argument, following a decision of a panel established under the Canada-US-Mexico AgreementCUSMA, the successor agreement to NAFTA, which found that the Canadian administration of similar import licenses was not consistent with what Americans believed they had signed when NAFTA was renegotiated.

At the beginning of March, Canada announced changes to its quota allocation policies CUSMA, eliminating the pool reserved for processors only. However, the CUSMA panel’s decision upheld the Commerce Minister’s right to make the final decision. The ultimate implications of these changes remain unclear.

The US, for its part, still seems skeptical.

During a visit to Ottawa last week, US Trade Representative Katherine Tai called Canada’s dairy market access problems “source of great frustrationWhile she and Ng are still “talking and discussing the details of how we can make some progress”, Tai said “it’s been a thorny issue for decades for sure”.

More compensation coming

Canada’s dairy industry remains bitter at having to suffer a succession of blows to its market in order for Canada to secure several subsequent trade deals under the liberals. In exchange for bringing these scams to the team, they demanded compensation from Canadian taxpayers.

In addition to the benefits of the way import licenses are allocated, Canadian farmers are receiving up to $1.75 billion in direct payments in the first four years of the implementation of the CPTPP and Canada’s trade agreement 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 home dairy processors to help them compete.

Finance Minister Chrystia Freeland said in her spring budget that her department will include additional compensation to the domestic dairy sector for losses attributable to CUSMA in next fall’s economic report.

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

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