TPP, RIP?

Let’s not forget that Canada, in the grand scheme of things, plays second fiddle to both Japan and the U.S. in this deal. What both of these countries will do matters a great deal to us, and the Presidential elections are complicating TPP’s path to a successful ratification. Most current Presidential front-runners like Donald Trump, Hillary Clinton and Bernie Sanders have all expressed their opposition to the TPP. So the TPP may die a good death outside our borders, but in the meantime we should embrace this opportunity to become a much stronger trading economy.

                         To blindly compensate supply managed sectors in ratifying the Trans-Pacific Partnership (TPP) makes as much sense as bailing out Bombardier through federal support. Stephen Harper’s defunct Conservative government pledged last fall to pay out $4.3b over 15 years to the supply-managed dairy, chicken and egg sectors. That amount is allegedly based on the premise that Canada is opening 3.25% of its dairy market to duty-free imports, as an example. Most of these numbers are the result of nebulous accounting conducted behind closed doors. Not the best way to win the trust of Canadians and make our country a major trading player across the globe.  

With no clear strategy on trades, our nation is highly vulnerable in a world in which trades and open markets are part of our global economy’s DNA. Supply management needs a fix, and fast. Conversions on compensation is currently superseding a real needed debate on what matters most: how to grant our country a true trade agenda, a debate we have not had since we signed the North American Trade Agreement in 1992. Such an approach is futile without thinking of how to reform our decades-old, fiscally-baggaged supply management scheme affecting dairy, poultry and egg sectors. Our protectionist approach to these sectors, supported by production quotas and high tariffs on imports, has clearly reached its expiry date. While supply management supporters claim that the system works as it has shown it can adapt, the facts are suggesting a different reality.

In dairy, for example, the system is really showing signs of desuetude. This past year, Canadian dairy processors such as Parmalat, Saputo and dairy farmer-owned Agropur and Gay Lea have imported well over $200m worth of dairy protein from the U.S. Since industrial milk prices are uncompetitive in Canada, our supply management regime is forcing industrial buyers to look elsewhere. Since supply management is about producing what we need, imported dairy protein has generated an unforeseen market imbalance. This situation led to the butter shortages we witnessed in recent months, which has forced Canada to import more butter. To address this issue, since April 1, dairy farmers in Ontario have dropped the price of industrial milk by creating a new class of milk for dairy processing. The aim, of course, is to entice domestic processors to buy Canadian proteins. But again, this measure is purely reactionary and speaks to how jumpy the sector is right now. The dangers of creating a new class of milk is real, as it can be perceived as a hidden subsidy and attract more criticism from TPP trade partners. This is not a good position to be in. Most recent decisions related to supply management are certainly not part of any long-term, rationale strategy in any way.

Supply managed sectors rely on common-sense trade leadership from Ottawa moving forward. As a result, the liberal government is proceeding with extreme caution with the TPP compensation package. To define what is the appropriate compensation package without having a ratified deal or knowing how our agricultural economy will be impacted makes little sense. Defining amounts and strategic orientations are key to this process. Ottawa should figure out what our trade strategy should look like before putting a number on the table for industry to consider.

The Comprehensive European Trade Agreement (CETA) is to be ratified and implemented in 2017 but offers no clear compensation to affected sectors. Still, CETA creates a real breach in our supply management scheme in providing market access to the extent of 2% of our domestic dairy market. Ottawa’s position on CETA is only adding more anxiety to an already tense situation. Pretending that supply management and an aggressive trading agenda can easily coexist is highly hypocritical and economically dangerous. With a strong mandate, Ottawa should attempt to resolve this as soon as possible.

But let’s not forget that Canada, in the grand scheme of things, plays second fiddle to both Japan and the U.S. in this deal. What both of these countries will do matters a great deal to us, and the Presidential elections are complicating TPP’s path to a successful ratification. Most current Presidential front-runners like Donald Trump, Hillary Clinton and Bernie Sanders have all expressed their opposition to the TPP.

The TPP may die a good death outside our borders, but in the meantime we should embrace this opportunity to become a much stronger trading economy.