TRADE DEAL THREATENED
Canada’s dairy quotas TP sticking point: U.S.
Canada’s participation in the Trans-Pacific Partnership trade negotiation is at risk because it has “declined to seriously engage” in talks about opening up its dairy, poultry and egg industries, according to the U.S. government’s chief agricultural negotiator.
Ambassador Darci Vetter said the choice on whether to remain part of the talks to conclude the trade agreement with the U.S., Japan and nine other countries is Canada’s. “They have to decide if they are ready to meet the standard of the agreement that was laid out before them when they joined. [But] it is difficult for me to see how we close a market access chapter with Canada that doesn’t include market access.”
When asked whether Canada might be booted from the negotiations by the other 11 prospective trade partners, a senior official said it depends on Canada making a substantive offer on supply management. But he warned “the time to make that choice is running out.”
A spokesman for Trade Minister Ed Fast said Canada remains a committed partner at the negotiating table. “We continue to work with all our TPP partners to conclude an ambitious agreement, while promoting and protecting Canadian interests,” he said.
Negotiations on the TPP between countries that account for 40% of global GDP have been hampered by the lack of “fast-track” Trade Promotion Authority for U.S. President Barack Obama. Without TPA, Congress could dismantle any deal clause by clause after it has been signed.
However, senior U.S. trade officials say a TPA bill, with bipartisan support, will be introduced in Congress within the next couple of weeks. The suggestion is that Mr. Obama could have TPA by the time Japan’s Prime Minister, Shinzo Abe, arrives in Washington on April 28.
The Japanese, who have sensitivities of their own, have long-argued that lack of TPA has held up bilateral market access talks between the two largest countries taking part in the TPP negotiations.
But U.S. officials say that, while progress has been made privately with the Japanese, Canada has been “avoiding the conversation” when it comes to dealing with its supply-managed industries, which inflate the price of dairy, eggs and poultry to Canadian consumers by locking out foreign products with exorbitant tariffs and limiting the amount farmers can produce.
James McIlroy, a trade lawyer and former trade official, said Canada will “rag the puck” until TPA is a certainty in Congress, and the Americans have concluded their agriculture deal with Japan. But he said for a trading nation like Canada to get kicked out of TPP is not an option.
“Pulling out of TPP in the middle of an election campaign would be a disaster,” he said. American officials say Canada has used the TPA issue as a “fig-leaf ” to avoid making substantive proposals on how the supply-management regime could be liberalized.
“I get that supply management is very sensitive. But it’s time to start having that serious conversation about market access to dairy, poultry and eggs. At this point there is no real engagement from Canada,” Ms. Vetter said.
In its recently signed deal with the European Union, Canada raised the quota of cheese that was allowed into the country tariff-free. But the Americans are looking for a much more ambitious deal on dairy, poultry and eggs — something they say was signalled clearly to Canada when it signed on to the TPP negotiations. The potential upside for Canadian producers, they say, is access to growing Asian markets and to the United States.
“Our industry sees an opportunity to be integrated across the northern border. Naturally that would mean dairy moving south as well as north,” said the U.S. trade official.
The Canadian dairy industry recently acknowledged, in a confidential briefing paper leaked to the Globe and Mail, that imports of milk protein isolates are creating a glut of milk north of the border. These new milk products can enter Canada from the U.S. duty-free and are being used by processing companies at the expense of Canadian milk. The briefing note stated that the highly concentrated milk protein and “waning government support” is creating an environment that “is no longer sustainable.”
U.S. officials point out that Canada could use the TPP as an opportunity to transition the Canadian dairy industry into a more export-oriented sector. They point out that the U.S. exported just 4% of its dairy output in 2000; today’s figure is 15%.
Mr. McIlroy said his experience with former clients like the Georgian Bay Milk Company suggests that Canadian dairy farmers can compete in the United States. “I also have poultry clients who are competitive in tough markets like New York City,” he said.
Failure to propose substantive change is likely to lead to Canada being isolated at the TPP table — and perhaps asked to sit out the initial round.
The Conservatives have backed supply management since the 2004 general election and the assumption has long been that dismantling the system would lose votes. A study by former Liberal MP Martha Hall Findlay sug-
Pulling out of TPP ... would be a [campaign] disaster
gested that there were less than 15,000 supply-managed farmers in the country, down from 144,000 in 1971, and that few, if any, ridings would swing as a result. However, in an election year, with the Harper government poised to gain seats in Quebec, anything that threatens the ruling party’s popularity will be heavily scrutinized.
Ending the system by buying out the quota owned by farmers would cost the government somewhere in the region of $30 billion. But even the U.S. trade officials do not suggest the system should be dismantled overnight.
Australia imposed a temporary levy on milk over an eight-year transition period, as it transformed its supplymanaged dairy industry.
“I agree the system needs time to liberalize. The federal and provincial governments, and the Canadian dairy industry, should therefore start developing transition strategies and use the TPP to manage change, rather than continue to pretend that a Soviet economic system can exist in the 21st century,” said Mr. McIlroy.