NAFTA Renegotiations: An opportunity for Canadian Dairy?
DOI:
https://doi.org/10.11575/sppp.v11i0.42679Abstract
What are the implications of a renegotiated NAFTA for Canadian dairy producers? Many observers dread the prospect of even the slightest liberalization in the dairy sector. This paper takes a different perspective, arguing that opening Canada’s dairy sector would come with benefits not just for consumers, which is undeniable, but could also transform the industry and lead to a more productive dairy sector in Canada. Canadian dairy producers have been protected domestically through supply management and internationally through import-restricting border controls for over 40 years. This combination of domestic and foreign policies keeps Canadian dairy prices artificially high and allows producers to gain enormously from the system while hitting dairy consumers directly in the pocketbook. These policies are extremely costly for Canadian consumers and benefit the protected domestic dairy producers. Canadian international trade policies result in 200-percent tariffs on imports of many dairy products and almost 300-percent tariffs on over-quota imports of cheese. The OECD estimates that from 2010 to 2016, Canadian trade policy with respect to dairy and the “supply management system” annually transfers over US$2.9 billion from Canadian consumers and taxpayers to milk producers. This is extremely expensive for Canadian consumers and this transfer to Canadian dairy producers underscores why our trade partners have focused on the exorbitant tariffs that support this system. We argue that it is not only consumers that are hurt by the status quo, but that the industry itself can evolve and thrive from increased competition. According to standard trade theory, liberalizing trade in an industry like this leads the least productive producers to exit the industry as the most-productive producers increase market share and expand. These dynamics generate a more competitive and productive industry. We present evidence that these dynamics played out in Canada following the Canada-U.S. Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA) and also in liberalized dairy industries in New Zealand and Australia. We argue that the massive economic rents earned by dairy producers in the essentially closed Canadian dairy sector means there is little competition in the industry, which has stifled growth and innovation in the sector. Liberalizing international trade in dairy will turn this around, increase competition in the industry and lead to a more productive and internationally competitive Canadian dairy sector while reducing the high cost of dairy faced by Canadian consumers. Liberalizing dairy will also be a strong signal to our trading partners that we are prepared to expend domestic political capital to improve NAFTA or other trade agreements. It has become clear that our trading partners have lost patience with our protectionist trade policies with respect to dairy. Multinational organizations such as the WTO have also highlighted the problems that these policies pose. Canada is feeling pressure to reform the system from trading partners who are hurt by supply management policies. Eliminating trade restrictions in the supply management sector would go a long way toward appeasing our trade partners and fulfilling our international commitments. Supply management policies are in violation of the spirit and, arguably, the letter of law in international trade agreements. In the recent Trans-Pacific Partnership (TPP) negotiations, Canada agreed to increase foreign access to its dairy market over a period of time by an estimated 3.25 per cent of its yearly milk production. This was a step in the right direction toward more competition in the sector. Canada should continue to push for reform in the dairy sector along the lines agreed to under TPP — but push even harder in the renegotiation of NAFTA. Unfortunately, Canadian politicians of all stripes have found that fixing supply management is a non-starter politically, with the powerful supply management lobby being such an effective lobby group. The TPP agreement provided the right opportunity to open the dairy industry. This is obviously good for Canadian consumers but will hurt some Canadian dairy producers. The negative impact on the politically sensitive dairy producers, primarily in southern Ontario and Quebec, has left the level of protection in the industry largely untouched for decades. Although some dairy producers will be hurt by opening the sector, the industry overall will thrive and become globally competitive. As demonstrated in the empirical literature of trade reform, and as we have observed in other Canadian industries that liberalized under CUSFTA and NAFTA, inefficient producers will close shop and more-productive producers will expand and prosper. The dairy trade liberalization that Canada agreed to under TPP should be the beginning and the NAFTA renegotiations are an opportunity for Canada to step up and do the right thing with respect to international trade in dairy while giving the Americans something they want in the negotiations. At the same time, it is an opportunity to weaken supply management and move toward dismantling it altogether.Downloads
Additional Files
Published
Issue
Section
License
The following is the copyright statement of SPPP.
Copyright © <Author name> <year>. This is an open-access paper distributed under the terms of the Creative Commons license CC BY-NC 4.0, which allows non-commercial sharing and redistribution so long as the original author and publisher are credited.
Publication Copyright and Licensing
The following guidelines and information, provided in six sections, are intended for authors (the “Author”) who are invited to write a paper (the “Work”) for The School of Public Policy Publications (the “Publisher”). The rights and responsibilities conveyed in the SPP Author Agreement will only apply once your paper is accepted for publication. At that point in the publication process, you will be asked to download the form and return a signed copy via e-mail to spppublications@ucalgary.ca. Please review the below information to ensure agreement with SPPP policies.
Section 1: Author’s Grant of Rights
In consideration of the Publisher’s agreeing to publish the Work in The School of Public Policy Publications, the Author hereby grants to the Publisher the following:
1.1 The irrevocable, royalty-free right to publish, reproduce, publicly display, publicly perform and distribute the Work in perpetuity throughout the world in all means of expression by any method or media now known or hereafter developed, including electronic format;
1.2 The irrevocable, royalty-free right to use the Author’s name and likeness in association with the Work in published form and in advertising and promotional materials related to the Work; and
1.3 The irrevocable, royalty-free right to license others to do any or all of the above.
Section 2: Prior Publication & Publication by Others
2.1 The Author agrees not to publish the Work, or authorize any third party to publish the Work, either in print or electronically, prior to publication of the Work by the Publisher.
2.2 The Author agrees not to publish the Work in any publication outlet which is substantially similar to The School of Public Policy Publications for a period of six (6) months after publication of the Work in The School of Public Policy Publications. Substantially similar is defined as a non-subscription, open-access publication outlet with a similar mandate/vision and intended audience.
2.3 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to contact The School of Public Policy Publications to inform them of the subsequent publication.
2.4 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to make reasonable efforts to ensure that any such additional publication cites the publication in The School of Public Policy Publications by author, title, and publisher, through a tagline, author bibliography, or similar means. A sample acknowledgement would be:
“Reprinted with permission from the author. Originally published in the The School of Public Policy Publications, http://www.policyschool.ca/publications/.”
Section 3: Editing and Formatting
The Author authorizes the Publisher to edit the Work and to make such modifications as are technically necessary or desirable to exercise the rights in Section 1 in differing media and formats. The Publisher will make no material modification to the content of the Work without the Author’s consent.
Section 4: Author’s Ownership of Copyright and Reservation of Rights
4.1 Nothing in this agreement constitutes a transfer of the copyright by the Author, and the copyright in the Work is subject to the rights granted by this agreement.
4.2 The Author retains the following rights, including but not limited to, the right:
4.2.1 To reproduce and distribute the Work, and to authorize others to reproduce and distribute the Work, in any format;
4.2.2 To post a version of the Work in an institutional repository or the Author’s personal or departmental web page so long as The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.2.3 To include the Work, in whole or in part, in another work, subject to Section 2 above and provided that The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.3 The Editors and Editorial Board of The School of Public Policy Publications requires authors to publish the Work under a Creative Commons Attribution-NonCommercial 4.0 International licence (CC BY-NC 4.0). This license allows others to distribute, remix, tweak, and build upon the Work for noncommercial purposes, and ensures the Author is credited for the original creation. This onward licensing is subject to section 2.4 of this agreement, which further ensures that the original publisher is credited.
Section 5: Author’s Warranties and Undertakings
The Author warrants that:
5.1 The Author is the sole author of the Work, or if a joint author, the Author has identified within the Work the other authors, and holds the copyright, either solely or jointly, and has the power to convey the rights granted in this agreement.
5.2 The Work has not previously been published, in whole or in part, except as follows:
5.3 Any textual, graphic or multimedia material included in the Work that is the property or work of another is either explicitly identified by source and cited in the Work or is otherwise identified as follows:
5.4 To the best of the Author’s knowledge, the Work does not contain matter that is obscene, libelous, or defamatory; it does not violate another’s civil right, right of privacy, right of publicity, or other legal right; and it is otherwise not unlawful.
5.5 To the best of the Author’s knowledge, the Work does not infringe the copyright or other intellectual property or literary rights of another.
5.6 The Author will indemnify and hold Publisher harmless against loss, damages, expenses, awards, and judgments arising from breach of any such warranties.
Section 6: The Reuse of Third-Party Works
The Publisher requires that the Author determine, prior to publication, whether it is necessary to obtain permissions from any third party who holds rights with respect to any photographs, illustrations, drawings, text, or any other material (“third-party work”) to be published with or in connection with your Work. Copyright permission will not be necessary if the use is determined to be fair dealing, if the work is in the public domain, or if the rights-holder has granted a Creative Commons or other licence. If either the Author or Publisher determines for any reason that permission is required to include any thirdparty work, the Author will obtain written permission from the rightsholder.
