NZ Prepping to Sue Canada Over Dairy Trade Access

(L-R) Trade or foreign ministers of Singapore, New Zealand, Malaysia, Canada, Australia, Chile, Brunei, Japan, Mexico, Peru, and Vietnam pose for an official picture after signing the rebranded 11-nation Pacific trade pact Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Santiago, on March 8, 2018. Claudio Reyes/AFP via Getty Images

A trade dispute between New Zealand and Canada over dairy products has escalated with Trade Minister Todd McClay seeking legal advice over what he calls a “cynical ” ploy by Canada to limit market access.

Under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreement, Canada, as a signatory, was supposed to allow free and unrestricted access of New Zealand’s dairy products to the Canadian market.

However, claims Canada was manipulating quotas to block exporters were upheld by an independent panel ruling in September 2023, and it was given until May 1 to revise its tariff rate quotas, remove priority access to its own dairy industry, and open up the market to New Zealand and other partnership signees without impediment.

However, changes to the policy by Canada implemented on last week have not implemented the above, leading Mr. McClay to publicly admonish Canadian authorities.

“Canada’s ongoing failure to meet its legal commitments is disappointing, but we have no intention of giving in on this. We back our exporters and we will defend hard-won free trade agreement commitments,” he said.

“New Zealand supports trade rules and takes seriously its obligations to trade partners. We expect others to show us the same courtesy,” Mr. McClay added.

ACT Party trade spokesperson Parmjeet Parmar called it a “betrayal of our friendship,” and said Canada should be “booted out of the deal” if it does not comply with the tribunal’s ruling.

“Our shared history and cultural similarities ought to be the basis of a close, good-faith relationship. But on trade, Canada is shutting us out... Canada signed the CPTPP knowing their exporters would benefit from reduced barriers to trade. But free trade is meant to go both ways, ” Ms. Parmar added.

The CPTPP and How it Affects New Zealand

The free trade agreement was signed in January 2018 by New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, and Vietnam.

These countries account for approximately 14.6 percent of world GDP in 2022.

In recent years, New Zealand has also expanded its stable of trading partners to include Japan, Canada, Mexico and Peru, outside of its traditional focus of the UK, China, and the United States.

About 26 percent of New Zealand’s goods exports (NZ$19.2 billion) and 33 percent of its service exports (NZ$8 billion) originate via the CPTPP. The agreement is a replacement for the proposed Trans-Pacific Partnership which was not ratified in 2016 after President Donald Trump formally withdrew the United States on the back of domestic opposition.

CPTPP negotiations concluded, with the remaining participants agreeing to a revised version which excluded 22 of the original conditions and did not include the United States.

Canada Questions Whether New Zealand is Abiding by the CPTPP

While Canada is yet to release a direct response to the threat of legal action by New Zealand, Trade Minister Mary Ng and Agriculture Minister Lawrence MacAulay have previously said that Canada was “very pleased with the outcome of the panel’s report which is a clear victory for Canada.”

“The Panel has made a significant finding by recognising Canada’s discretion to set TRQ [tariff rate quota] allocation policies, including determining who is eligible to obtain an allocation.”

Canada’s dairy farmer lobby is powerful and its supply management agreements with the government ensure farmers receive guaranteed prices and production quotas.

Dairy pumps $19.9 billion yearly into Canada’s GDP generating $3.8 billion in tax revenues.

Speaking on the ruling last year, David Wiens, president of Dairy Farmers of Canada (DFC) said it was “disappointed with the dispute panel’s ruling which found that two of the six elements challenged by New Zealand were inconsistent with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Nonetheless, the panel found that four of New Zealand’s claims were unfounded.”

Mr. Wiens then challenged the level of assistance the New Zealand government was giving its dairy industry, which he intimated contravened the CPTPP.

“We now call on the federal government to do a thorough review of the measures the government of New Zealand has put in place to support its dairy sector to ensure that they are consistent with its international trade obligations,” he said.

The dairy industry accounts for nearly 20 billion of Canada's GDP.  Martin Hunter/Getty Images

What’s Next? 

Mr. McClay said he will now take legal advice as to the next course of action.

“New Zealand’s prosperity depends on international trade, making up 60 percent of the country’s total economic activity. It is only through a strong economy that we can reduce the cost of living and afford the public services Kiwis deserve,” he said.

“We continue to engage in good faith throughout this process and I’ve asked officials to provide advice on next steps. I will be making an announcement on that in due course.”