The US Is Threatening Canada Over Some Cheese and Milk, and Canada Thinks That's Mean

US lawmakers are threatening to block Canada from the expansive Trans-Pacific Partnership trade deal if it doesn't axe its highly protective regime for milk and cheese. Canada says it won't be "bullied."

by Justin Ling
Jul 22 2015, 8:50pm

Photo by Marc Muelle/EPA

Members of the United States Congress are threatening that if Canada doesn't axe its 45 year-old collectivist regime for milk and cheese, then it may be blocked from the expansive Trans-Pacific Partnership trade deal.

A letter, penned by 21 Republican and Democratic members of Congress — including the chairs of the Ways and Means, Agriculture, and Trade committees — is the most direct threat to Canada's supply management system yet.

"It is critical that Canada finally commit to finish the work left undone in our prior agreements and finally commit to significant and commercially meaningful market access for all remaining agricultural products," the letter, addressed to Canada's ambassador to Washington, reads. "It will be difficult for us to support Canada's inclusion in TPP if significant new dairy access is not part of the deal."

The government of Canada manages a complex system of price controls and quotas for Canada's dairy and chicken industry, known collectively as supply management.

The system limits waste and guarantees returns to suppliers by fixing the amount of dairy that can be produced. Farmers are required to buy quotas, which in turn allows them to produce dairy and sell their product to one of the government-managed marketing boards. Those boards can process the raw product, and turn around and sell them on the open market.

To keep the system afloat, the government runs prohibitively high tariffs at the border, making it nearly impossible for consumers or industry to import any significant amount of cheese, milk, chicken, or eggs.

Previous trade deals, like the recently-signed agreement with the European Union, have pushed Canada to increase market access for foreign dairy, especially cheese. But while other sectors, like beef and pork, have seen significant increases in how much foreign product will enter the Canadian market — and, in turn, how much access they will get to foreign markets — dairy has still remained largely protected.

Canada's Conservative government maintains nothing significant will change once TPP is signed and ratified.

"Our government is committed to defending our system of supply management," Rick Roth, spokesperson for Canada's Minister of International Trade, told VICE News. "We want to make sure that Canada is a part of a TPP. Prime Minister Stephen Harper will only sign an agreement that's in Canada's best interests."

And he dismissed the letter as a "strong-arm" tactic to get Canada to negotiate through the media.

"We'll negotiate at the negotiating table and frankly we won't be bullied into negotiating this through the media," he said.

But the pressure to do away with protectionist policies is mounting.

Related: Massive Trans-Pacific Trade Deal Pits Dairy Against Beef in Canada 

While the American dairy sector subsists on a system of generous subsidies, those may slowly sunset as the massive international deal progresses. Other countries negotiating the deal, especially Australia and New Zealand, have largely deregulated their dairy sector, and are hot on the trail for new markets.

New Zealand Prime Minister John Key has recently set out to try and find new trading partners for the country's lucrative dairy sector for his country, which is often billed as "the Saudi Arabia of milk."

"We're the world's biggest dairy exporter, and Canada is probably the most protectionist dairy country in the world," New Zealand's high commissioner to Canada told the Globe and Mail last year.

It's been rumored that several governments have drawn battle lines with Canada on the deal, but few of the details have been made public, as the negotiating texts of the deal remain a closely-guarded secret. Leaks of the draft agreement have been published by WikiLeaks that highlight potentially massive changes to the world's intellectual property and copyright regimes, but no language about agriculture has been released as of yet.

It's unclear how the American lawmakers plan on following through with their threat to turf Canada from the deal. Thanks to President Barack Obama's new Trade Promotion Authority powers, he can fast-track deals like the TPP, requiring an up-or-down vote that removes Congress' ability to horse-trade and change the terms of an agreement.

Follow Justin Ling on Twitter: @justin_ling