Canada’s supply managed sectors should prepare now for a world without high protective barriers, say three prominent agricultural trade analysts.
In the current issue of the magazine Canadian Public Policy, they argue that an erosion of current tariff rate quota import restrictions and over-quota tariff barriers is inevitable as world trade liberalization talks continue.
“In our view, a slow phase-in to a more liberal trade regime, potentially augmented with adjustment assistance, is the best way to reduce if not eliminate the industry’s fear of falling off a cliff when significant over-quota tariff cuts are mandated while at the same time capturing some of the available gains from trade,” wrote Richard Barichello from the University of British Columbia with John Cranfield and Karl Meilke from the University of Guelph in Ontario.
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They argue that although World Trade Organization talks could take years, the trend is to liberalize trade.
“If no action is taken to reform the supply-managed industries, significant over-quota tariff cuts following the post-Doha round of trade negotiations could result in sharp decreases in domestic prices.”
Industries that use the system of supply regulation combined with high tariffs to keep out foreign competition include dairy, eggs and poultry producers. They limit production to serve only Canadian markets.
Barichello, Cranfield and Meilke offer three possible reform scenarios.
They imply that a government buyout of the $26 billion worth of quota is the toughest option because of cost.
One possible amendment would be to compensate farmers for what they paid for the quota rather than the base price plus capital gains.
A second option could be a two-quota system that allowed farmers to sell existing quota and then to buy lower-priced quota under which product would be sold at lower prices to compete with cheaper world prices.
A third option could be patterned on the 2000 Australian model that deregulated fluid milk prices but levied a 10-year consumer tax aimed at softening the blow for farmers.
