The time and cost of forcing 'the world's friendliest nation' to comply with the rules of new trade deal bode ill for when more intransigent countries like the UK or China dig in their heels.
Analysis: "Protectionist" Canadian trade bureaucrats and dairy processors will be forced to open up to another $30 million a year in New Zealand dairy exports – but that win has come at a cost.
It has taken New Zealand trade diplomats and lawyers 15 months and $750,000 to extract today's ruling from the disputes panel of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, in the first such dispute within the new 12-nation multilateral trade grouping.
I've spoken with Trade Minister Damien O'Connor, to coincide with the panel publishing its ruling. He believes it's good news for New Zealand dairy farmers – and good news for Canadian consumers.
"While clearly this was a sensitive issue for Canada, I'm confident they remain committed to the rules of international trade and to the CPTPP," he says. "We expect them to follow through on the implementation of the base agreement."
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This country's dairy exporters lost an estimated $120 million in revenue from the Canadian market, over the past three years.
"Ultimately, it is now up to exporters whether they choose to take up that access but, by all assessments, the dairy market in Canada is discerning the value of our product and we have no doubt would appreciate some competition from New Zealand suppliers."
O'Connor concedes Canada is a less open trading economy than New Zealand, and has a powerful dairy lobby. "I think it's more localised than the New Zealand industry and operates in a different world. I think for Canada to trade internationally, and to rely on consistent rules of trade, they needs to implement them themselves."
In its submissions, New Zealand accused Canada of operating a "protectionist" trade regime. Australia, and several other countries, gave their backing to New Zealand in hearings before the panel.
The panel found that New Zealand exporters were not able to fully utilise Canada’s 16 dairy tariff rate quotas and that Canada was granting priority access to their own domestic dairy processors.
Would New Zealand dairy exporters now get better access to those processing facilities? "Their way of managing quotes and dairy access was obviously the issue of contention. The panel has ruled. It's now up to Canada to follow through on that."
The UK was admitted to the Trans-Pacific Partnership in July. China, Taiwan, Uruguay, Ecuador, Costa Rica and Ukraine have all applied for entry. None of these has a history of unconstrained trade.
"I think it's it's an indication of the challenge ahead of us," O'Connor says. "We have been making good progress because we've been consistent, we've been upfront and committed. We have no option, as a trading nation.
"I think that is appreciated internationally, which is why we've been able to lead by example and negotiate free trade agreements with far bigger players, because they too see the value of consistent rules being implemented."
If a trading nation like Canada has to have its arm twisted to comply with the rules of the trade deal, how likely is it that countries like China would comply?
"I can't make comment," O'Connor replies. "All I can say is that they've applied. The admission process is one by consensus. There's a long way to go."
Newsroom has asked Global Affairs Canada (that country's equivalent of our Ministry of Foreign Affairs and Trade) whether it will comply with the ruling, and in what timeframe.
It's yet to reply, but it's understood that 15 months or so is considered a reasonable time to comply with an order like this. parties on the losing side of trade disputes tend to push out changes as far as they can.
That delay would add another $40m or so in lost export incomes to the $120m already written off. And there are no fines or penalties imposed in the process, meaning the Canadian farmers will continue to laugh all the way to the bank for a while yet.
My colleague, business journalist Andrew Bevin, has spoken with officials about the ruling. "Canada has taken the stance it did because of its notoriously powerful ‘big milk’ lobby and supply management regime that regulates the supply of dairy through production, import and pricing controls," he argues.
"Limiting imports is done through substantial tariffs and quotas that have also attracted negative attention from the United States, which is actually moving onto its second trade dispute panel with Canada, feeling that its newly revised tariff-rate quotas weren’t up to snuff."
