New Zealand reaches deal with Canada in long-running dairy trade dispute

Canada has agreed to allow access for New Zealand dairy products following a long running trade dispute, Trade Minister Todd McClay says.

Dairy exporters had been blocked from the Canadian market, despite the move being in breach of the CPTPP trade agreement.

On Friday morning McClay announced an agreement had been reached.

He says Canada has committed to making changes to its dairy quotas which will deliver up to $157 million to New Zealand dairy exporters.

New Zealand initiated formal dispute settlement proceedings over restricted access to the Canadian market for dairy exports under the CPTPP in 2022.

A dispute panel found in New Zealand's favour, however, Canada failed to fully comply with the panel's ruling. New Zealand threatened further action last year including the imposition of retaliatory tariffs against Canadian exporters.

"The government is pleased that this dispute has now been settled, and New Zealand exporters are guaranteed better access to the Canadian market," McClay said.

Canada said the changes have been negotiated with "close consultation" with its dairy sector and the amendments will result in "minor policy changes".

In a statement Canadian Agriculture minister Heath MacDonald said it was a "mutually satisfactory" resolution.

Under the agreement, Canada has committed to changing the way it administers its dairy quotas under CPTPP, including faster and more efficient access to quotas for New Zealand exporters, reallocation of underused quotas, and penalties for importers who misuse quotas.

"The CPTPP is a world leading agreement that unlocks significant opportunities for all parties, but its obligations must be upheld. Today's agreement reinforces support for the rules-based trading system," McClay said.

He added Canada was a long-stranding friend and trading partner of this country and "constructive engagement" had brought about a resolution.

Last year ACT Party trade spokesperson Dr Parmjeet Parmar called the dispute a "betrayal of our friendship".

She said if Canada could not comply with the CPTPP, it should be "booted out of the deal".

Deal welcomed

Fonterra is pleased to see the end of a long running trade dispute involving NZ and Canada.

Fonterra global external affairs director Simon Tucker told Midday Report Canada has a very protected dairy market and it has taken what he calls "dogged determination" by governments and officials to force Canada to comply with its obligations.

He said dairy farmers could sell millions of dollars of products into Canada but it is only a small part of the Fonterra sales which has revenues of more than $20 billion a year.

"Canada is one of those high value niches around the world which would be good for Fonterra.

"This was the right to do; to use the disputes settlement over this issue. We won, and then governments and officials have worked hard to force Canada into compliance.

"This is the right outcome."

Tucker said the win opens up opportunities for New Zealand to pursue further moves especially around Canada's protein subsidies which are considered unfair.

ExportNZ has also welcomed the deal, saying it will unlock higher export value for Kiwi business.

Executive director Josh Tan said the outcome was a win for New Zealand dairy exporters, and a win for the rules-based trading system.

"It's essential that our trade agreements function as they were agreed to - particularly in the current global trade context. Likewise, our trade partners should ensure they are playing by the rules."

Canada was a valuable trading partner for New Zealand, Tan said.

The Dairy Companies Association of New Zealand congratulated the Government for settling the dispute, which was first initiated under the previous Government.

Executive director Kimberly Crewther said the outcome proved that dispute mechanisms were still a valid and viable approach to be taken.

She said Ministry of Foreign Affairs and Trade estimated $157 million of trade revenue was not able to be used, due to breaches of the CPTPP.

"Previously, it was giving the majority of export licences under these quotas to its own processors, many of whom had very little interest in seeing imports occur and they could hold on to those export licences and not use them without any penalty," Crewther said.

"The changes introduce penalties... so that's a good improvement and we hope that it will lift the utilisation rates."

She said Canadian dairy farmers received subsidies, which brought low prices to global dairy trading among nations without farmer subsidies, like New Zealand.

"They're skewing the global dairy trade playing field quite significantly," she said.

"Unfortunately, Canada's not a stranger to having these sizeable impacts on trade opportunities for New Zealand exporters.

"Canada has a reputation for being amongst the most protectionist of dairy countries in the world, and they do that in a way that makes their market very difficult to access even with these CPTPP quotas, it remains 95 percent closed."

Crewther said New Zealand had "virtually no tariff protections" on dairy into the market, and openly imported dairy into the country.

"So we operate on an open basis, our farmers are not receiving direct subsidies and we are we're trading fairly in the world."

She said its first preference is an on-demand licensing system which ensured those applying for the quotas would utilise them appropriately.

"It's really important to hold them to account. This case has shown that dispute settlement can and does work, and it's important that New Zealand continues to move forward and uses these mechanisms where we need to."

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