OTTAWA – Barring an unlikely reversal in the next month, Canada is poised to win a major victory in its battle with the United States over whether the $6 billion supply management system can exist behind protective tariffs.
An international trade panel last week informed Washington and Ottawa that it was prepared to rule 5-0 in favor of Canada’s position that tariffs of between 100 and 351 percent, to protect supply-managed products, are legal under international trade law.
The U.S. has challenged the validity of those tariffs on dairy, poultry and egg products, claiming the North American Free Trade Agreement requires all tariffs to disappear early in the next decade.
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Canada’s supply managed sectors – close to 30,000 farmers with sales of $6 billion last year – have argued that an end to tariff protection would strip billions of dollars from their income and equity and threaten tens of thousands of farm and processing jobs.
Last week, in a confidential preliminary report to Canadian and American governments, NAFTA’s panel of two Canadians, two Americans and a British chair said Canada is correct that its tariffs are legal under the new world trade agreement which takes precedent over the NAFTA.
The report was leaked in Washington. Canadians would not formally comment, noting the U.S. and Canada have a month to respond in private before a final report is released in mid-August.
But the scope of the Canadian victory was clear from the reaction of the Americans.
“Obviously, I would prefer it not to go in that direction,” said U.S. agriculture secretary Dan Glickman. “It’s disappointing.”
American dairy interests immediately demanded that the U.S. not accept the ruling.
Washington-based trade consultant and former American free trade negotiator Bill Merkin predicted that in this U.S. election year, politicians will use the ruling to bash Canada, free trade and the idea that the U.S. should live by trade rules# written by others.
“There isn’t a lot the U.S. can do legally but I’m sure there will be pressure on Canada to negotiate some sort of compromise,” he said. “There isn’t much legal ground for it, but then the U.S. got a cap on wheat exports from Canada when there was no legal ground for it either.”
In Canada, while consumer lobbyists mourned the continuation of what they consider high prices and tariffs protecting an inefficient farm sector, farmers and politicians were quietly celebrating last week.
Canadians were insisting they stick to the confidentiality agreement contained in the report, despite its leak in Washington.
There were no official government or industry claims of victory.
“We are sitting tight,” said Dairy Farmers of Canada official Richard Doyle. “Let’s wait for the final report to announce if we are sorry or happy.”
Trade and industry sources said it is highly unlikely the final report will be watered down.
