The Canadian government has vowed to defend itself strongly against a legal challenge on dairy exports by the New Zealand government.
But it has appeared to suggest that it will abide by the outcome of arbitration.
This development follows a move on Monday by the New Zealand government to challenge Canada’s obstruction of dairy sales there.
The decision to take legal action followed months of unsuccessful “consultations” with Ottawa over Tariff Rate Quotas (TRQs) which are required under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
These TRQs are supposed to be available to global exporters like NZ but have been allocated overwhelmingly to Canadian dairy processors and distributors.
This means NZ can get only 9% of the TRQs and is faced with 200% to 300% tariffs on the remainder.
NZ has now activated a disputes segment of the CPTPP, in a world first, and requested establishment of a special panel to arbitrate.
In a statement, Ottawa strongly defended its trade policies but appeared to suggest it would abide by the findings of the panel.
“The government will always stand up for Canada’s dairy industry, its farmers and our supply management system,” said a statement by a spokesperson for Global Affairs Canada, Lama Khodr.
“Canada is a fair trading partner, a strong proponent of rules-based trade and the disputes settlements process, and we take our commitments under the CPTPP very seriously,” she said.
“At a time when global food security is under threat, we must maintain a strong and vibrant domestic dairy industry, and we will continue to defend our position during the dispute settlement process.
This statement defends the strict regulation of the Canadian dairy industry, which goes as far as to stipulate quantities of production.
But it also carries an implication that the findings of an arbitration panel will be abided by.
The Trade Minister Damien O’Connor has said in the past that NZ exporters lost $68 million in potential sales in the first two years of the CPTPP, and that number would rise as the intended export entitlement of CPTPP expanded over time.
Meantime, NZ’s decision to take legal action has been welcomed by Dairy Companies Association of New Zealand (DCANZ).
“Any trade agreement is only as valuable as its implementation,” said its executive director Kimberly Crewther.
“We are on a slippery slope when trade rules and trade agreements stop being implemented by any party.”
An international trade expert Stephen Jacobi thinks New Zealand has a very good case against the Canadians.
“They didn’t really open their market at all,” he said.
“When friends like NZ and Canada have disputes like this that can’t be solved, it is the right thing to do to resolve it in a transparent way.”
NZ tried earlier to resolve this dispute by negotiations but came to believe the Canadians were stalling by making minor adjustments to their trade documents and then trying to pass them off as new policy.
As a result, NZ has filed a “request to form a panel”, which is trade-speak for arbitration.
One member of the panel would be appointed by NZ and one by Canada, and the pair would then select a third.
This is the first such action taken since the CPTPP came into force and the first such action taken outside the WTO.
A powerful lobby group, Dairy Farmers of Canada, has been a beneficiary of the block on New Zealand sales.
It declined to comment on this dispute, but earlier defended the issuance of TRQs to domestic suppliers. This was in connection with another trade agreement, the Canada-United States Mexico Agreement (CUSMA), which replaced the old NAFTA.
“By allocating CUSMA TRQs to processors and distributors, Canada is meeting its trade obligations,” the organisation wrote.
“Our industry worked closely with the Government ….. and this approach has shown itself to be one worth replicating, be it on CUSMA or any other trade related matter.”