As part of the recent trade agreement that Canada and the European Union announced in October of 2013, the annual amount of cheese that EU countries will be able to export to Canada will increase by 17,700 metric tons. Under the existing World Trade Organization quota system, the EU has been able to export 13,272 tons of cheese to Canada each year.
This agreement to expand foreign access to the Canadian dairy market is a crack in the walls that protect the Canadian dairy sector. The Canadian dairy industry’s greatest fear is that this crack will expand and bring down the whole system of supply management. Supply management protects milk, egg and poultry producers from imports (and particularly from imports from the US) by tariff rate quotas. With production and price controls further limiting supply, the result is higher prices for Canadian consumers; another result is stable incomes for producers and greater control over quality.
Supply management, however, is antithetical to the push for freer trade that has characterized the trade policies of the Harper government. As Michael Grant of the Conference Board of Canada recently wrote (Grant, 2013):
In trade negotiations, dairy interests are gradually being traded off against export-orientated agricultural sectors. In the case of CETA, some European dairy access to Canada was traded off for Canadian beef and pork access. More generally, agricultural interests are being traded off against other interests, such as manufacturing and trade in services.
A second fear is that the greater inflow of European cheese will threaten the burgeoning group of artisanal Canadian cheese makers because the increased imports are likely to be in the high-end cheese market. Even though the Europeans have a long history of producing fine cheeses, not all believe that they will displace their Canadian competitors. For example, a cheese retailer interviewed by the Toronto Star said that he thought Canadian producers could withstand the new competition. Avrim Pristine said: “I’ve seen the evolution of the cheese industry in Canada. I’m blown away by Canadian product. I don’t see this as a threat” (Benzie, 2013).
Nonetheless, the federal government has promised to “monitor impact and, if needed, provide compensation should a negative impact be observed” (Canada, 2013, p. 10). It is not yet clear whether this would be compensation for the affected firms, for affected workers or for the affected provinces. A year ago, then-Premier of Québec, Pauline Marois said that Québec generally supported CETA but would not ratify the agreement until the nature of the compensation for its dairy sector was made clear (Dolbec, 2013).
This promise of compensation is one of three made by the federal government in connection with the CETA negotiations. A second promise is to compensate all provinces for the higher costs that they will incur because of the longer patent protection offered to the EU pharmaceutical industry. The third promise is the offer a “fisheries fund” worth up to $400 million to compensate that province for removing its minimum processing requirements as they apply to fish and seafood exported to the EU.
The Newfoundland offer has thus far attracted the greatest attention because the federal government has inexplicably claimed that the promised fund can only be used to compensate Newfoundlanders for demonstrable harm, despite a clear statement to the contrary in an exchange of letters between the two governments. In response, the Newfoundland premier, Paul Davis, has said that he will not remove the minimum processing requirements and further stated that “[y]ou can’t trust Stephen Harper’s government” (CBS News, 2014). Given the Newfoundland situation, can the dairy industry trust the federal government to deliver on its promise of compensation?
The Newfoundland situation was confrontational from the outset with Newfoundland explicitly trying to use its control over its minimum processing legislation to gain as much as it could from the federal government in exchange for the elimination of the rules as they pertain to the EU. The exchange of letters is clear enough but does not constitute a formal agreement between the federal and provincial governments.
By contrast, the dairy situation is really about a promise made to the dairy industry, rather than to any particular province. It has been clear to all parties that the compensation was to be for demonstrable harm caused by CETA, although there will doubtless be disputes as to what constitutes “demonstrable harm”. And the federal government has already tasked its Department of Agriculture and Agri-food with the job of estimating the likely harm that might be caused by the dairy sector provisions of CETA. So while provincial political leaders are wise to ask for specific details on the compensation before asking their legislature to ratify CETA, there is reason to believe that some compensation will be forthcoming, if harm in fact occurs.
Note: This piece draws on a research project on which I have been collaborating with Dmitry Lysenko, a recent graduate of Carleton’s PhD Program in Public Policy. The project deals with cases of compensation offered by federal government during EU negotiations. We analyze these cases from the perspective of how trade adjustment assistance has evolved in Canada and how federal-provincial relations in the area of trade policy must operate in the contemporary environment. We hope to publish the results of the project early in 2015.
Barichello, R. (2000). A Review of Tariff Rate Quota Administration in Canadian Agriculture. Agricultural and Resource Economics Review, 29(1), 103–114.
Benzie, R. (2013, October 18). CETA: Wynne hails “very good deal,” but warns Ontario has concerns | Toronto Star. Retrieved May 28, 2014, from http://www.thestar.com/news/canada/2013/10/18/ceta_wynne_hails_very_good_deal_but_warns_ontario_has_concerns.html
Canada. (2011). Exchange of Letters Constituting an Agreement Between Canada and the European Community on the Conclusion of Negotiations Under Article Xxiv:6. Retrieved from http://www.treaty-accord.gc.ca/text-texte.aspx?id=100683
Canada. (2013). Opening New Markets in Europe Canada-European Union Comprehensive Economic and Trade Agreement: Technical Summary of Final Negotiated Outcomes. Retrieved from http://www.actionplan.gc.ca/sites/default/files/pdfs/ceta-technicalsummary.pdf
Canada, Foreign Affairs and International Trade Canada. (2013). Technical Summary of Final Negotiated Outcomes: Canada-European Union Comprehensive Economic and Trade Agreement.
Canadian Dairy Commission. (2011). MILKingredients.ca. Retrieved January 5, 2015, from http://www.milkingredients.ca/index-eng.php?id=184.
CBS News. (2014, December 12). Paul Davis “cannot trust” Stephen Harper, says rules for fisheries fund changed. Retrieved January 5, 2015, from http://www.cbc.ca/news/canada/newfoundland-labrador/paul-davis-cannot-trust-stephen-harper-says-rules-for-fisheries-fund-changed-1.2870812
Dolbec, M. (2013, December 16). Quebec won’t back Canada-EU trade deal without help for cheese industry, Marois says. Retrieved January 5, 2015, from http://www.theglobeandmail.com/news/politics/quebec-wont-back-canada-eu-trade-deal-without-help-for-cheese-industry-marois-says/article15989003/
Grant, M. (2013). Time for Dairy to Go on the Offensive. Retrieved May 28, 2014, from http://www.conferenceboard.ca/economics/hot_eco_topics/default/13-11-01/time_for_dairy_to_go_on_the_offensive.aspx
 The story behind these specific numbers is as follows. Under Canada’s supply management system, the federal government sets the amount of cheese that can be imported into Canada. In 1975, Canada establishes a 50 million pound quota for the overall amount of cheese that could be imported. In 1978, that quota was lowered to 45 million pounds (20,412 metric tons) and has remained at that level ever since. When such quotas were banned under the 1994 Uruguay Round Agreement, that same amount became the level of the tariff rate quota to which Canada agreed. Under a tariff rate quota, a certain amount – here, 20,412 tons – is allowed to enter tariff-free but any amount above that is subject to very high tariffs that discourage any significant increase in imports. Until 1995, 60% of the 20,412 tons was reserved for the EU but beginning in 1996, Canada agreed to raise the EU percentage to 66% or 13,372 tons. See Barichello (2000) and Canada (2011). The deal negotiated as part of CETA allows the EU an increased quota, in addition to the existing 13,372 tons, of 16,000 tons of “fine” cheese and 1,700 tons of industrial cheese for a total of 17,700 tons. Apparently fulfilling a previous commitment, Canada also agreed to allocate to the EU another 800 tons from the WTO quota of 20,412 making the overall increase 18,500 tons [see Canada (2013, p. 10)].
 CETA contains two other provisions related to the dairy industry. First, Canada has accepted the expansion of EU rights in relation to Geographical Indicators (GI). Previously, only GIs related to wine and spirits (e.g., Cognac) were protected. In CETA, Canada agreed to a set of provisions protecting GI rights related to agricultural products and foodstuffs but negotiated limits to those rights in some important cheese-related cases. In particular, Canada negotiated a modified set of limits on the use of five cheese names — Asiago, Feta, Fontina, Gorgonzola, and Munster. These names can continue to be used by Canadian producers who were using them as of October, 2013. New Canadian producers, however, can use these names only if they are accompanied by expressions such as “kind” or “type”. For example, if a Canadian cheese-maker decides to produce Asiago cheese, the product will have to be named “Asiago-like” cheese. Second, Canadian tariffs on milk protein concentrates (MPC) will be eliminated. MPC are produced by filtering skim milk and consist of a dry — and thus easily transported —substance that contains many of the beneficial properties of milk. MPCs are used in many prepared foods, including infant formula and commercially sold desserts. US exports of MPC already enter Canada duty-free so the harm caused by this provision is not likely to be large. See Canadian Dairy Commission (2011).