New Zealand has finally pulled the trigger on a legal challenge against Canada’s failure to uphold its end of the bargain in the Comprehensive and Progressive TransPacific Partnership trade agreement.
“Our priority is to ensure that NZ exporters have meaningful access to the benefits negotiated under CPTPP, and that all parties fulfil the commitments they have made to each other under the agreement,” Trade Minister Damien O’Connor said.
O’Connor said Canada had violated the rules of the agreement by continuing to block the use of quotas created to prise open access to its highly-protected domestic dairy markets to exports from CPTPP countries in 2019.
NZ dairy exporters have complained the Canadians had largely shut them out of their domestic market by awarding between 85% and 100% of 16 special quotas created under CPTPP to local processors.
As a result less than 10% of the annual quota for dairy imports created under the agreement had been filled in its first three years.
Outside of the quota limits NZ dairy exporters face trade-killing quotas of between 200% and 300%.
“CPTPP sets high standards for all parties and it is important these standards are maintained to ensure that our exporters can benefit from the agreement in a way that is fair and commercially meaningful,” O’Connor said.
O’Connor put the losses to NZ exporters from not being able to fully use the quotas at $68m over the CPTPP’s first two years.
If no corrective action was taken those losses could be expected to mount as the quota tonnages increased under the terms of the agreement.
The abuse of the quotas has exasperated NZ trade officials who have raised the matter repeatedly with their Canadian counterparts over the past three years.
“The underfill [in quota] is ridiculous,” one highly-ranked NZ trade official said.
“They say ‘yes, we are looking at it’ but nothing ever happens.”
The official said NZ had been encouraged any challenge under CPTPP would have a sound legal footing after a tribunal ruling against Canada in January over virtually the same manipulation of quota arrangements under its trade agreement with the United States and Mexico.
That had raised hopes among exporters that any fix as a result of the USMCA ruling would be carried across to the CPTPP quotas.
However Canada is still to formally respond to that ruling and the NZ government appears to have run out of patience.
“Occasionally even good friends disagree, and it’s for that reason dispute settlement mechanisms in free trade agreements such as CPTPP exist to provide a neutral forum for settling such disputes.”Damien O’Connor
“NZ has an excellent relationship with Canada,” O’Connor said.
“We have appreciated Canada’s engagement on this issue at different levels over a number of years and these proceedings will not come as any surprise to them.
“Occasionally even good friends disagree, and it’s for that reason dispute settlement mechanisms in free trade agreements such as CPTPP exist to provide a neutral forum for settling such disputes.”
Canada now has until this coming Thursday to respond to NZ’s request for consultations before these commence.
If the dispute remains unresolved NZ can request the formation of a panel of judges to adjudicate.
It is the first legal challenge by NZ using the dispute settlement mechanism of a free trade agreement and the first by any member of the CPTPP against another since it was signed.
NZ has won all of its nine cases against trading partners under the auspices of the World Trade Organisation dispute settlement tribunals since they were set up in the 1990s.
The first was against Canada over the subsidisation of its dairy exporters in 1997.
However the WTO has been effectively shut off as a legal avenue after former United States President Donald Trump blocked appointments to its appellate court.