Canadian Manufacturing

A dairy for lumber deal? Think tank paper proposes Canada U.S. swap for NAFTA

by Alexander Panetta, The Canadian Press   

Canadian Manufacturing
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With trade talks with the U.S. seeming imminent, the Montreal Economic Institute has suggested an high-stakes detente

The Montreal Economic Institute has suggested using Canada’s dairy industry as a bargaining chip in lumber talks with the U.S.

WASHINGTON—The most common uses of Canadian dairy normally include milk, cream, yogurt, butter and cheese. Yet a new report suggests an altogether different purpose for the calcium-packed, bovine treat.

The idea—use it as a bargaining chip.

A free-market think-tank suggests offering American negotiators in upcoming NAFTA talks more open trade in dairy, in exchange for more predictable trade in softwood lumber to secure long-term peace in that perennially problematic file.

Squeezing some protectionism out of both industries would be good for consumers in the two countries, spur economic productivity and ultimately result in more successful businesses, says the report from the Montreal Economic Institute.


“Trade barriers have never made more than a small minority of people richer, at the expense of the vast majority,” says the paper, released March 23.

“Eliminating those that persist in the agricultural sectors under supply management and in the softwood lumber sector … would be good both for consumers and for producers…

“That opportunity should be seized without hesitation.”

American lawmakers have already indicated they will press the Trump administration to gain more dairy trade—while at the same time softwood lumber experiences its latest round of once-a-decade lawsuits and tariff threats.

The industries share similarities.

Both are shielded from open trade in the old NAFTA. Both employ more than 200,000 people in Canada. Both claim a similar economic value of $14-15 billion to Canada’s GDP. However, one industry—softwood—is heavily reliant on exports, and the other isn’t.

The paper proposes tossing them both open by dismantling the supply management system.

Supply management limits the amount of dairy and poultry Canada imports before a tariff kicks in. Thursday’s report says dismantling the system would mean lower prices at the supermarket, and a more internationally competitive, innovative industry.

It points to New Zealand’s experience with dairy liberalization, which nearly tripled production and made the country a global player.

But Canada’s dairy lobby vigorously disputes the supposed benefits of changing.

Dairy Farmers of Canada says supply management’s critics get several things wrong—starting with the price of milk. It cites statistics showing Canada in the middle of the international price range on milk, lower than New Zealand and France and higher than the U.S. and Germany.

It notes the system also keeps prices stable.

It also points out that eliminating it wouldn’t create free trade in agriculture. In the U.S. alone, research by the Congressional Budget Office has calculated that country will provide tens of billions in federal support for farm programs over the coming decade.

But the Montreal Economic Institute’s paper says the industry could use a jolt.

It says that dairy production levels compare to those of the 1960s; that it’s failing to innovate and tap the growing international demand for dairy; and that it’s being propped up by inflated prices that cost each Canadian $258 a year.

The paper says abolishing dairy quotas should be conditional on a reciprocal elimination of U.S. dairy subsidies—which also exist, although they are less significant than other types of U.S. agricultural subsidies like grain.

As for lumber, the paper says the benefits of a deal are obvious _ preserving 24,300 direct and indirect forestry jobs, bolstering exports and avoiding a tariff-caused spike of $1,300 in the average price of a U.S. home.

There are two major obstacles to this idea ever happening.

The first is that all major Canadian political parties support supply management, which has vocal backing in rural areas, especially in Ontario and Quebec. There also was noisy opposition to the system being nudged open a bit in recent trade deals with Europe and Asia.

The second is that there’s no guarantee U.S. negotiators would go for a logs-for-cheese deal.

Yet the idea has old roots.

A senior negotiator from the original 1987 Canada-U.S. free-trade agreement said he would have loved to trade away supply management.

In his memoir on the negotiations, Gordon Ritchie said the dairy system hurts Canadians at grocery stores, protects inefficient producers and keeps the industry from becoming an international player—like Canada’s vineyards did once liquor protections loosened.

So what happened?

Ritchie says the Americans never made a big offer, and Canada kept its cheese chit.

“We were, regrettably, successful in protecting those (dairy and poultry) restrictions,” he wrote in his memoir, “Wrestling With The Elephant.”

“I for one would welcome the removal of these restrictions,” he wrote. “As a negotiator, however, I did not feel the Americans had paid us enough to be entitled to their removal.”


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