NZ exporters remain largely shut out of the Canadian market, despite the creation of 16 new low-tariff dairy import quotas as part of the CPTPP free trade agreement.
Pressure is mounting on Canada to live up to its commitment in the Comprehensive and Progressive TransPacific Partnership (CPTPP) to open up its market to New Zealand dairy exports after the United States used its own trade agreement to force open the door to its northern neighbour’s dairy market.
A tribunal earlier this month ruled Canada had violated the terms of the United States-Mexico-Canada (USMCA) free trade agreement by setting aside between 85% and 100% of import quotas exclusively for use by its own dairy processors.
Created to give low-tariff access to the Canadian market for dairy producers in the US and Mexico, the USMCA import quotas have been left unused by Canadian processing companies who have continued to source milk from Canadian dairy farmers.
It is a similar story for NZ exporters who remain largely shut out of the Canadian market despite the creation of 16 new low-tariff dairy import quotas as part of the CPTPP free trade agreement.
The Dairy Companies Association of NZ’s Washington-DC based trade policy manager Elizabeth Kamber said Canada had set aside similar percentages for its own domestically-supplied processing companies in CPTPP as it had under USMCA.
As a result, less than 10% of the annual quota for dairy imports created under CPTPP has been filled in the first three years of the agreement.
Outside of the quota limits NZ dairy exporters face tariffs of between 200% and 300%, rendering most trade uneconomic.
Kamber said it was encouraging that the clause in the USMCA agreement Canada had incorrectly relied upon to set aside a quota for its own processors was virtually identical to the one it had negotiated with NZ and other countries in CPTPP.
“The matters are separate in the sense that they are two separate agreements but the similarities of the wordings do link them, so there is a clear relevance from this finding coming out of USMCA for CPTPP in our view,” Kamber said.
“We would expect that any changes that Canada would make as a result of this … would also be extended to all of its quota administration policies.”
Under USMCA rules Canada has 45 days to comply with the tribunal ruling or potentially face retaliatory tariffs against its own exports entering the US market.
Canada has a patchy record of complying with adverse rulings in trade disputes and Kamber said the dairy industry here would wait to see how it responds and whether any remedies would be extended to the administration of CPTPP quotas to the benefit of NZ exporters.
In two years of raising the matter with their Canadian counterparts, NZ trade officials have had little success in getting changes to the way Canada administers its quotas under CPTPP.
A review of the quota administration system for a range of commodity imports by Canada’s equivalent of the Ministry of Foreign Affairs and Trade had received submissions from the NZ dairy industry.
It had been due to report back its findings last year but has been delayed.
Kamber said the pressure was mounting on Canada to live up to the commitments it had given in the CPTPP to open its consumer markets or face further consequences from its trading partners.
“The USMCA case has come through upholding the same concerns that we have raised, so I think it is right for officials to look at what other options the agreement provides for us to resolve the issue,” she said.
“It could follow that a logical step would be to initiate a formal proceeding or dispute under CPTPP to address the concerns NZ has under the agreement.”
Whether or not to sue the Canadian government under the auspices of the CPTPP dispute settlement provisions would be for Trade Minister Damien O’Connor to decide.
She said it was difficult to quantify the lost opportunities for NZ dairy exporters from Canada’s quota administration because it was just one of a number of measures the Canadians continued to use to protect its farmers from imported competition.
Disentangling the cost to foreign competitors of one protectionist policy was difficult when they all worked together to keep imports at bay.
However, Kamber said the NZ government should enforce its rights under CPTPP regardless, particularly given its priority of diversifying markets for exporters and reducing reliance on China.
