Trans Pacific trade vs. elections vs. good policy

Protecting supply management may be a task that Canadian negotiators cannot accomplish

It is inconceivable that the Harper government does not have a contingency plan as the freight trains of the October election and the Trans Pacific Partnership trade negotiations hurtle towards each other. The trade talks are held up by the reluctance of the U.S. House of Representatives to follow the Senate and approve legislation allowing the Obama administration a free hand in working out an agreement that Congress can accept or reject but not change. There is a credible possibility that the House will not do so, in which case the TPP enterprise will join the World Trade Organization’s Doha Round in a zombie half-existence. The Conservative government will then not have to make an impossible choice.

If the Congress acts as it should, the TPP process could quickly enter its last chapter. Canadian negotiators will have to respond to persistent pressure from the U.S., Australia and New Zealand to tear down the wall of triple-digit duties that enable supply management in Canada’s dairy and poultry sectors.

Since virtually no information about the real state of the talks has been made public pursuant to a secrecy agreement among all 12 countries, no one can tell how determined the attackers of supply-management are. But it seems unlikely that they will be easily mollified. Protecting supply management may be a task that Canadian negotiators, or any negotiators, cannot accomplish. The threat has already been made by a high Obama trade official to the effect that Canada could be expelled, not exactly over cheese, eggs and chicken, but for declining to accept a core free-trade principle. Of course, no country can push another out of the group, but the alternative before any member to accepting conditions negotiated and agreed by all the others is obviously to exit.

Canada, the U.S., Australia and New Zealand are the agricultural exporters in the group; the others are high-population, high-income net food importers. Export markets for non-agricultural commodities and manufactured products are even more important but have received less attention. Should Canada somehow end up not a party to a TPP agreement, it would lose more than the possibility of future export opportunities, economic activity and employment, not only in agriculture but generally: It would also forsake the very large and vital markets it already has, as other TPP exporters obtain tariff-free or lowtariff access and possibly other preferences.

Nobody can blame marketing board interests, especially supply-management farmers, for feeling a bit frantic. Reforms to supply management would not just mean loss or serious constraint on monopoly pricing; they would also eviscerate the

If not part of TPP, Canada would forsake very large and vital markets it already has

marketing board quotas that confer the right to milk cows and raise chickens. Assured profitability under the system has been capitalized in quota, and the average dairy farmer has as much or more invested in quota as in the cows.

The right to sell one kilogram of butterfat a day currently trades for about $28,000 in eastern Canada. Different farms have different quota cost bases. Some farmers own quota inherited from forefathers who obtained it at no cost when the system was instituted. Those who bought in more recent times paid astronomically, but in good faith and in the course of managing their farms according to the prevailing regulatory and economic environment. Since supply management is government-sanctioned, every concept of fairness would be violated if quota suddenly (or even slowly) lost its value through government action.

Perhaps because they cannot think of anything else to do, the marketing boards have mounted big campaigns to build public support. They say the system assures consumers reliable amounts of high-quality, safe and local food. Food safety and quality claims are patently false because they have nothing to do with marketing systems. Safety and quality standards are set by government for all and would apply equally under any marketing regime. Nor can supply-managed production be said to be local. Centralized processing and the nature of distribution mean that products produced anywhere are sold everywhere, for instance, Quebec cheese.

The supply-managed sector will not succeed in creating a groundswell of public support, and even if it could, public opinion will have little or no bearing on how the government resolves this. It is a monstrous problem arising from simplistic notions some generations ago of how agricultural prices could be set.

Buying out $40 billion of marketing board quota at public cost is out of the question. But it is even further outside the realm of reason to abandon trade arrangements that would hugely benefit the country (and at least 90 per cent of non-supply-management farmers).