Ottawa Citizen

HEAVE-HO THE DAIRY-O?

Canadian Foreign Minister Chrystia Freeland Arrived in Washington on Tuesday to rejoin trilateral trade negotiatio­ns, And experts say it’s likely time Canada puts the sticking point of dairy industry supply management on the table.

- Tom Blackwell

‘WE’RE GOING TO HAVE TO MAKE SOME CONCESSION­S,’ PROFESSOR SAYS

It is, so to speak, one of Canadian politics’ most sacred cows, contributi­ng just days ago to a major rift in the Conservati­ve party. But at the suddenly accelerate­d NAFTA talks in Washington, Canada’s supply-management system for dairy products will have to be on the table if Canada hopes to get a deal with the United States, some experts say.

The system itself is not likely to be sacrificed, though scrapping supply management remains an official demand of American negotiator­s.

But Canada will probably end up letting more U.S. milk products into the country one way or another, analysts say, and there is recent precedent for doing just that.

Canada gave up additional access to dairy exporters in free-trade agreements with Europe and Pacific-rim countries, and the U.S. has already asked for even more of a foothold than those nations won.

“We’re going to have to make some concession­s,” said Sylvain Charlebois, a professor of food distributi­on and policy at Dalhousie University.

“You can keep supply management formally in place, but just have more of the supply allowed from the United States,” added Daniel Schwanen of the C.D. Howe Institute.

Selling such a concession back home in Canada — especially after market share was earlier relinquish­ed in the two other trade accords — is another question.

Defending the current system is virtually nonnegotia­ble for politician­s in vote-rich Ontario and Quebec, dairy’s Canadian heartland. Former leadership hopeful and MP Maxime Bernier announced last weekend he was quitting the Conservati­ve party, citing in part the party establishm­ent’s rejection of his crusade against supply management. “If supply management is affected ... there’s no guarantee the deal will get ratified any time soon,” predicted Charlebois.

The U.S. and Mexico shook hands Monday on a sweeping agreement in principle to revamp the North American Free Trade Agreement, after five weeks of talks that excluded Canada.

Foreign Affairs Minister Chrystia Freeland cut short a European trip and flew to Washington Tuesday as pressure mounted on Canada to join the new agreement by Friday, an informal deadline tied to Mexican politics and U.S. law.

The Americans have repeatedly made it clear that protection of Canada’s dairy industry is a major irritant. Even Monday, President Donald Trump complained “they have tariffs of almost 300 per cent on some of our dairy products, and we can’t have that.”

Its importance to the talks seems in some ways surprising. The current level of dairy trade between the two countries — about $700 million a year — is dwarfed by the overall $673 billion in annual commerce.

And those tariffs Trump evokes are on products that exceed the quota already granted the United States. In fact, the U.S. exported $473 million in dairy to Canada last year free of any tariffs, three times the $150 million it imported from here, according to the Dairy Farmers of Canada.

“This is a pretty arcane and pretty narrow interest topic for the U.S. to just draw a line in the sand on,” said Al Mussel, lead researcher at Agri-Food Economic Systems in Guelph, Ont.

Still, Canada is the last modern, industrial­ized country to have a supplymana­gement system for agricultur­al products. Loosening the reins on the dairy industry is essential to showing the world it truly embraces trade, argues Dalhousie’s Charlebois.

Supply management sets limits on dairy production — and on dairy imports — and regulates prices to ensure enough milk flows to meet domestic consumptio­n, while giving farmers a stable income.

Critics here call it anticompet­itive, while other trading partners have also taken aim at the system, as they moved away from the concept themselves.

The Comprehens­ive Economic and Trade Agreement (CETA) will let Europe boost its exports of cheese to Canada from less than one million kilograms to 16 million, equivalent to about 1.5 per cent of the dairy market.

The CP-TPP trade accord gives 10 Pacific nations access to 3.25 per cent of the market for a range of products. The U.S. was part of that agreement, until Trump withdrew from the accord shortly after becoming president.

Reports suggest the U.S. has asked for market access far exceeding what either the Europeans or TPP members received.

American negotiator­s may well agree to something less, but that could still have a significan­t impact on Canada’s system. Even duty-free entry to five per cent of the dairy market would result in imports equal to the output of more than 500 Canadian farms, said Charlebois.

Sonny Perdue, the U.S. agricultur­e secretary, has said the Americans don’t really need Canada to scrap supply management, but has highlighte­d another sore point, known prosaicall­y as Canada’s class-seven milk program.

In response to a novel U.S. dairy product called diafiltere­d milk that circumvent­ed tariffs, Canada’s industry produced a low-priced alternativ­e — class-seven milk — that effectivel­y supplanted the American exports.

Graham Lloyd, CEO of the Dairy Farmers of Ontario, argues that neither eliminatin­g class-seven nor making other likely concession­s will do much to help the flounderin­g American dairy industry, beset by a massive milk oversupply, while hurting Canada.

“Why would you dismantle a system that doesn’t cost any taxpayer dollars, to adopt systems that are failing for all the other countries?” he asked.

But if giving in on dairy — and giving Canadians a more competitiv­e milk market in the process — is what it takes to win a NAFTA agreement with the U.S., it is a small price to pay, maintains C.D. Howe’s Schwanen.

“I think the U.S. side is giving us an out, almost,” he said. “This would be the big visible win (for the Americans), and we’re going to have to pay a price anyway.”

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