Have Canadian Bovines Scuttled TPP?

This past Friday (July 31) was to have marked the completion of the Trans Pacific Partnership (TPP), a signature effort for a President that I might best describe as agnostic about trade liberalization, but nevertheless a critical piece of his foreign policy agenda. Well, it didn't happen. Why? Canadian diary cows.... or more specifically, the heavily protected farmers that raise them.

If you've ever wondered why milk and other dairy products on Canadian grocery stores never seem to go on sale, look no further than Canada's supply management system; a regressive, and outdated set of policies that distort prices, controls supply, and limits competition in the Canadian dairy sector. Canada's dairy industry goes to some effort to defend this system, in part arguing that they are defending the health and welfare of Canadians. The reality is that it's mainly about protecting a small group of relatively affluent farmers (poultry too, by the way). 



As the TPP talks moved rapidly toward their conclusion in the last couple of weeks, Canada's supply management system reared its ugly head and became a key, though not the only, sticking point in delaying completion. The whole episode is rich with hypocrisy. When negotiations began in 2005, there were only 4 participating countries, Brunei, Singapore, Chile, and New Zealand; not exactly the world's largest economies. However, when the United States took an interest in the talks in early 2008, the importance of the TPP grew, and grew even further after President Obama's conversion as to the merits of trade liberalization.

Canada Wants In

Suddenly, a number of other countries wanted to join the TPP fray, including America's NAFTA partners, Canada and Mexico. Mexico? No problem. Yet, the United States (along with New Zealand) held Canada at bay, making it clear to the Harper Government that supply management had to be on the negotiating table. Canada could ill-afford to be a part of the most significant regional trade liberalization excercise since the NAFTA, particularly if it risked losing some of it's hard-won preferential advantages in the U.S. to upstart TPP members. Hence, in 2012, Harper seemingly relented and put supply management on the table. Canadian dairy and poultry producers and their supporters were aghast. Critics of Canada's system cheered. If Canadian politicians didn't have the stomach to liberalize these sectors, perhaps foreigners did.

Got Milk?

Indeed, disputes with Canada over supply management policies are not new, nor are those who have complained about them. Interestingly, one of the loudest, most consistent critics of Canada's dairy policies is NOT the United States, rather it's New Zealand. Dairy is a key industry in New Zealand, and the Kiwis are notoriously aggressive in trying to secure market access for its producers. In 1997, the Kiwis filed a formal request for consultations over Canadian dairy policies with the World Trade Organization (dispute linked here). The United States, along with Argentina, Australia, what was then the European Community, Japan, and Mexico all piled on (see link to different complaint in same year). In 2003, all of these proceedings resulted in some minor tweaks to Canada's system, but not its dismantling.

Canada Tossed Out?

Mr. Harper has a bit of a problem on his hands here. On Monday (August 3), the Prime Minister asked that Parliament be dissolved marking the start of an eleven week federal election campaign. He has already stated that the campaign will have no impact on Canada's willingness to see the TPP through to completion. Really? We'll see. As far as Canadian campaigns go, eleven weeks is an eternity and Harper's rivals, especially NDP leader Thomas Mulcair, have been critical of Harper's position on supply management in the context of the TPP until now..... Not a surprising position for Mulcair to take given the gains the NDP hopes to make in Atlantic Canada, and vote-rich Quebec (5,000 dairy farms) and Ontario (4,000 dairy farmers). Canada's federal election will not be decided by several thousand dairy farmers up in arms over the TPP. Yet, supply management supports supports a much broader cross-section of the Canadian economy, an issue that Mr. Harper has recently become vulnerable on.

The United States and New Zealand were not keen on Canada being a part of the talks without supply management on the table. Mr. Obama hasn't been keen on doing Canada any favors of late, so it isn't inconceivable that Canada might soon find itself on the outside looking in.

As I noted above, Canadian supply management was not the only issue delaying the TPP last week, but it is a big one......Stay tuned....