The action is the first taken by a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership
When the federal government signed on to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018, it agreed to open a percentage of Canada’s dairy market to member countries.
New Zealand, one of 11 countries in the CPTPP trade agreement, said Canada is not living up to that promise.
Under the trade agreement, Canada provides quotas, known as tariff rate quotas (TRQs), for import of butter, cream, milk, milk powder and other dairy products from CPTPP nations. New Zealand’s dairy industry said a tiny fraction of the quotas are being filled.
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“The administration system Canada has put in place for these quotas has seen the right to import primarily given to domestic (Canadian) processors who are direct competitors to New Zealand exporters of those products,” the Dairy Companies Association of New Zealand said.
“This has resulted in pitifully low quota fill rates averaging just eight percent in the latest quota year.”
Earlier in May, New Zealand’s government launched a trade dispute over the issue, which is the first action taken by any country under the CPTPP.
The CPTPP is a free trade agreement between Canada, Australia, New Zealand, Japan, Malaysia, Vietnam, Peru, Singapore, Mexico, Brunei and Chile.
Canada’s ministry of international trade took issue with New Zealand’s claims, telling the National Post that “Canada is a fair-trading partner.”
“Our government will always stand up for Canada’s dairy industry, farmers and our supply management system. We have consistently said we will work with industry and with New Zealand on this issue, and we will continue to do so.”
The two countries will likely hold consultations to resolve the dispute. If that fails, New Zealand can request a panel to resolve the matter.
Tariff rate quotas are supposed to provide free access to another country for certain products. But that’s not how they typically work, said an agricultural economist from Quebec.
“There’s nothing about the free market with tariff rate quotas,” said Bruno Larue of Laval University. “It’s always set up in terms of who the government is trying to please.”
In this case, New Zealand said Canada has arranged the system so Canadian dairy processors control imports of dairy products.
The evidence suggests that New Zealand is correct.
“With CPTTP Canadian dairy TRQs, the bulk of the allocations (import licences) are reserved to processors, (about) 80 to 85 percent, depending on the products,” Larue said in an email.
The United States has filed a similar trade case against Canada under the United States-Mexico-Canada Agreement.
In December, a USMCA panel ruled in favour of the U.S., saying Canada’s allocation of TRQs doesn’t live up to the trade deal.
“(The panel) agreed with the United States that Canada is breaching its (USMCA) commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas for the exclusive use of Canadian processors,” the Office of the U.S. Trade Representative said in January. “Canada has been undermining the value of its dairy TRQs for U.S. farmers and exporters… by limiting access to in-quota quantities negotiated under the Agreement.”
Canada responded by proposing another system to dole out import licences, which the U.S rejected.
New Zealand likely noticed that ruling and decided to launch a similar trade dispute against Canada.
“New Zealand cannot sell a lot of dairy products to Canada (partly because Auckland is 11,000 kilometres from Vancouver), but it is trying to make a point,” Larue said. “They (New Zealand) have always had an ideological position about supply management programs and so they’ve made their point known (to Canada), several times.”
As part of the CPTPP agreement, countries like New Zealand have access to a portion of the Canadian dairy market. But import data shows that the quotas are not being filled, except for butter. From Aug 1, 2020, to July 31, 2021:
- butter quota, 2.25 million kg; imports, 2.06 million kg
- cream quota, 530,000 kg; imports, 121,000 kg
- milk, 25 million kg; imports, zero
- milk powder, 1.02 million kg; imports, 95,000 kg
- skim milk powder, 3.75 million kg; imports, 25 kg
So, only a small amount dairy products are coming into Canada from CPTPP nations, yet dairy farmers are receiving compensation because of the trade deal.
“The Government of Canada continues to deliver on its commitment to provide $1.75 billion to dairy producers for market access concessions made under the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and CPTPP,” the federal government said in December.
For some ag economists, the math around compensation doesn’t make a lot of sense.
“(The compensation) is supposed to be loosely based on some estimate of how farm-level returns might change, if all that negotiated (market) access gets filled,” said Ryan Cardwell, an agricultural economics professor at the University of Manitoba. “(But) those fill rates on some of the TRQs are very low. So that (market) competition isn’t really materializing.”
