Canada shouldn’t compromise its economic protection for dairy farmers

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International trade agreements have always been a contentious issue since the dawn of the modern nation state. The balance between maintaining the integrity of domestic industry and the realities of living in an interconnected world is a precarious one. Should the scale drift too far in either direction, then the news cycle will be flooded by pundits and economists who will decry what they perceive as “selling the economy overseas” or “shutting out the globe.” 

With the intricate web that is global financial markets further complicating an already demanding topic, it becomes apparent that objectively determining a trade treaty’s economic impact cannot be decided until long after the ink on the agreement has dried.

Recently, Canada and the United States have both declared themselves “victors” following a panel decision on Jan. 4. The dispute had to do with allegations that Canada failed to abide by the provisions of the United States-Mexico-Canada Agreement (USMCA) calling for increased access to Canada’s notoriously protected dairy market. 

The issue was first raised in May 2021, by the U.S. Trade Representative (USTR) Katherine Tai after American dairy producers lodged complaints claiming that “… the way Ottawa allocates its import quotas for stateside dairy products is a violation of the [USMCA].” 

According to the USTR’s grievance, Canada has been distributing its tariff-rate quotas (TRQ) in such a manner that favours processors over producers, thereby keeping American farmers away from the share of the market they say the USMCA grants them.

Ultimately, the panel of arbitrators tasked with overseeing this disagreement ruled in favour of the USTR. Canada now has until Feb. 3 to comply with this decision or face the possibility of retaliatory tariffs. 

Despite this obvious victory for the Americans, Ottawa has made the case that Canada has eked out a win of its own. The panel’s report states that “nothing in the Panel’s ruling constrains Canada’s discretion to administer its TRQ however it wants, within the Treaty’s set limits … Canada has significant discretion in designing and implementing its allocation mechanisms.” Thus, Canada has leeway to continue maintaining its supply management system, albeit within the limits fashioned by the agreement.

What has happened here is not particularly new in our era of globalization and interconnectivity. In fact, it is a concept that has existed long before our society as we know it today. That fragile co-existence that defines international trade: knowing when to bend and when to stand firm. 

Canadian dairy is a notoriously contentious subject wherein the government mandates quotas to ensure a balance between supply and demand, otherwise known as the supply management system. The biggest criticism against the system is that its protectionist approach stifles the dairy market and that a better course of action would be to take the free-market neoliberal path that has been popular since the 1990s.

However, this comes back to the sliding scale of isolationism and industry compromise. 

It is not hard to decide between maintaining a bloated but reformable government program, or letting loose agri-food corporations so they can generate short term profits at the expense of long-term stability.

For the time being, Parliament Hill must weigh its options: defy the panel and risk tariffs from the U.S. or comply and see if the future fairs kindly for the dairy industry and the supply management system. The U.S. is one of the largest economies on Earth, but that does not mean Canada must be compelled to capitulate all the time.