The industry was bitterly disappointed at the 12-country agreement’s limited new openings to dairy products when the negotiations concluded in 2015 but failure by Canada, Japan and Mexico to follow the terms of the deal means it has not even been able to deliver on that.
In the two years since the agreement came into force low-tariff and tariff-free quota created to open their markets to more imports of dairy products have gone largely unfilled.
Canada has been the worst offender, with just 12% of quota for dairy imports from CPTPP countries filled last year and just 4% so far this year.
In Japan just 40% of dairy quotas have been filled while fill rates have also disappointed in Mexico.
Dairy Companies Association of NZ executive director Kimberly Crewther said administrative foot-dragging by the three countries’ governments, along with President Donald Trump’s withdrawal of the United States from the agreement in 2017, meant the $96m of annual gains predicted for the industry once CPTPP was fully implemented now looked unachievable.
“With the US having withdrawn and the quota fill rates being low we will be falling short of the estimated tariff savings.”
Both DCANZ and Fonterra made submissions to Canada’s recent review of its quota administration policies although this was now on hold because of the pandemic.
The Ministry of Foreign Affairs and Trade was aware of the problem and raised it with Canadian, Mexican and Japanese counterparts and was due to do so again at an online meeting of CPTPP officials last week.
Crewther said it was disappointing but not unusual for countries to use quota administration to protect local industries from the increase in imported competition that followed free trade agreements.
“The agreement of new access in FTAs is great but it is the implementation around that access that is really crucial to whether it is usable or not.”
In the case of Canada up to 85% of quota was allocated to local processors who sourced subsidised raw milk from the country’s farmers and tended not to import dearer foreign dairy products.
Only 10% was for importers, who were also prevented from getting their hands on quota allocated to local processors but not used.
Canada’s chronic underutilisation of its CPTPP import quotas was reinforced by its Milk Class 7 milk payments system, which subsidised prices paid to local farmers and undercut imports and has long been a bugbear of the NZ industry and other exporters.
In Japan a lottery system meant anybody could put their hands up for quota, with some obtained by entities who were not capable or had no intention of using it, Crewther said.
It was probable some bids were connected to local farming interests determined to keep out imported competition but others will have been opportunists, she said.
“Some of the people who won the lottery have no real experience or past commercial activity in importing dairy products … and large commercial customers were not able to receive access to (quota) and when that has been the case those trades that we would have expected to occur have not.”
Eligibility rules had since been tightened by the Japanese government while a use-it-or-lose-it rule had been introduced.
This meant entities who did not use all of their quota in one year would have their allocations cut back the following year.
However this still fell short of the first-come, first-served allocation method Japan had agreed with NZ and other CPTPP countries.
“They unilaterally decided to implement something different,” Crewther said.
In Mexico auctions for import quota had been cancelled where only one bid was received.
Crewther said the NZ Government had queried this with its Mexican counterpart.
“Because if there is one bidder it is still somebody looking to purchase.
“The objective of any quota should be to promote utilisation of that access.”
A MFAT spokeswoman said the NZ government had been pleased with improvements made to quota allocation by Japan and Mexico but still had concerns which it continued to raise with all three governments directly, as well as through CPTPP committees.
“NZ officials have continued to stress the importance of full and proper implementation of (quota) administration commitments; to make recommendations for improvements in administration procedures; and to press for improved transparency on fill rates.”
Neither DCANZ or MFAT would comment on what steps NZ could take should consultation with the three countries not resolve the remaining problems with administration of dairy quotas.
