The United States, Australia and New Zealand are demanding unfettered access to Canada's highly protected dairy and poultry markets a day after inviting Ottawa to join them in the Trans-Pacific Partnership free trade talks.
Their demands to tear down agricultural trade barriers mean Canada's supply management system will be in the cross hairs in the TPP talks.
"For Australia, it's about market access. We have farmers who are very keen – as does New Zealand – to have access, to have the removal of barriers and tariffs," Louise Hand, Australia's High Commissioner to Canada, said in an interview on Wednesday. "I guess Australia, like the others, needed to be assured that that was where Canada was coming from."
The U.S. dairy industry is similarly salivating at the prospect of securing access to the closed Canadian market – which sustains nearly 15,000 farmers and keeps prices artificially high.
"All Canadian trade barriers against U.S. dairy products must be eliminated," the U.S. Dairy Export Council and the National Milk Producers Federation said in a statement as they backed Canada's bid for entry as a way to re-open the issue.
The powerful dairy industry quickly served notice to the Obama administration that it won't back any TPP pact without "full market access for U.S. dairy products in the Canadian market," said Tom Suber, president of the U.S. Dairy Export Council. Canada's dairy and chicken farmers are equally determined to preserve the tariff wall and controls on production that shelter the industry from global competition.
The supply management system also requires Canadian consumers to pay an extra $3-billion a year for milk, cheese, eggs and chicken.
But Canada has quietly suggested to TPP countries that any concessions it makes on supply management in the Canada-European Union trade negotiations could become a model for its offer to the other TPP countries, which include the United States, New Zealand, Australia, Malaysia, Singapore, Vietnam, Brunei, Chile and Peru. Mexico, like Canada, was invited to join this week.
While Ottawa has been tight lipped on the details, Matthias Brinkman, the EU's ambassador to Canada, briefed reporters in April on the negotiations. Rather than abandoning supply management, he said, both sides are aiming to adjust quotas, with a quid pro quo for certain products, such as allowing more European cheese imports in exchange for increased beef exports.
Canadian tariffs on dairy products, which are up to 315 per cent, could be cut by 30-50 per cent and still be "prohibitive," Mr. Curtis pointed out.
Trade Minister Ed Fast told The Globe in an interview on Wednesday that Canada made no specific commitments to get into the talks, nor has it ruled anything out.
"We've made two things very clear: We're prepared to discuss all issues at the negotiating table," he said. "And we've also made commitments to our farmers. In all of our previous trade negotiations, right from NAFTA on, we've been able to satisfactorily resolve these issues and come up with trade agreements that really serve the interests of both sides."
Australia, New Zealand and the United States were the last three of the nine original TPP members to approve Canada's entry to the talks. The TPP members were aiming to conclude an agreement this year, but that appears optimistic now.
"Our farmers don't want barriers on any sector, but this is obviously a negotiation," Ms. Hand said. The "starting point" is that Canada is committed to "an ambitious outcome" that includes "the elimination of barriers to trade in goods and services," she added.
Trade experts, and even other TPP countries, acknowledge that Canada's protectionist supply management system is unlikely to disappear overnight.
But to get to the TPP table, Prime Minister Stephen Harper has put supply management in play. And that will almost certainly mean significant concessions, including allowing more foreign products into a system keeps virtually all imports out.
"Tariff and subsidy elimination means dairy farmers in both Canada and the U.S. will have to face genuine world signals, which neither of them do now," insisted an official of one TPP country, who declined to be named.
The pressure is not just from abroad. Canadian food makers such as McCain Foods Ltd. and Saputo Inc. want to sell to the Asian market, but can't buy dairy ingredients here at competitive prices.
"I suspect there will be the beginning of movement on the supply management question – not just because of foreign pressure, but because our own processors are finding it too expensive to manufacture food," said John Curtis, the former chief economist at the Department of Foreign Affairs and International Trade and now an adjunct professor at Queen's University. "That's where the real economic pressures are."
Other experts say Ottawa should be much more ambitious at the talks, and in other trade negotiations. In an upcoming C.D. Howe Institute paper, former Canadian trade negotiator Michael Hart urges Ottawa to phase out supply management unilaterally over 10 years.
"It's time to be a little braver," said Mr. Hart, a professor at Carleton University's Norman Patterson School of International Affairs. "Mr. Harper wants Canada to be a trading nation. Okay, Mr. Harper: just do it."
With a report from Paul Koring in Washington