Trans-Pacific Partnership could include big dairy concession

Canada is preparing to open the border to more American milk, without getting reciprocal access for Canadian dairy farmers in the United States, CBC News has learned.

Trade Minister Ed Fast will leavethe campaign trail to join his counterparts in Atlanta on Wednesday,intent on concluding the Trans-Pacific Partnership trade talks. Chief negotiators from the 12 Pacific Rim member countries meet starting Saturday.

Conservatives wantto conclude a deal before theOct. 19election and cast it asa win for consumers.But whatFast offers could seriouslydisruptthe supply-managed dairy sector.

If that happens, "there's going to be a war," saysYves Leduc from the Dairy Farmers of Canada."The industry will never accept that."

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The final offers on market access for dairy products were one of the few things ministers didn't get to duringthe last trade talks in Maui, Hawaii, in late July.

The list of outstanding issues is now very short: rules of origin for the automotive sector, which are also sensitivein Canada,as well asintellectual property protectionsfor pharmaceuticals. The deal is portrayed as "98 per cent done."

The short strokes on dairy come down to how much of Canada's domestic market would be opened up to American products to compensate U.S. dairy producers for opening up their market to TPP partners such as New Zealand, an aggressive and competitive dairy exporter.

CBC News has learned Canada is prepared to offer up a significant share ofits domestic market (as defined by consumption levels), including not only fluid milk, but also possibly butter, cheese, yogurtor the milk powders and proteinsused to make other foods.

The American goal for dairy market access was nine or 10 per cent, afigure that promptsdairy industry folk to use words like "enormous" and "annihilation." But even if Canadian negotiators successfully push back, an offerof even half that would be huge.

It's far more than the concession made in the 2013 Canada-EuropeComprehensive Economic Trade Agreement, which was roughly two per cent. That more than doubled the previously tiny amount of European cheese allowed into Canada tariff-free. That deal, however, still protected other Canadian dairy products, including milk.(The EU deal has not yet been ratified by either side.)

Shrinking the sector

For the EU deal, the Harper government offered dairy producers compensation contingent on proven losses not a foregone conclusion amidrisingdemand for cheese. Having to prove a loss before getting helpwaspoorly received, with producers uncertain what's really coming and the government non-committal onprecise dollars.

For the bigger concession now in play, the demand for compensation would be greater.

The trade deal would not offer Canadian dairy products any new international markets. So, more imports would meana smaller Canadian industry.

The compensation package this time may have to be massive, and could includea wayto help producersout of farmingby buyingbackquota. While it's unclear how much thiswould cost the government, at current market values for quota, pulling out 10 per cent of milk production could require$2 billion.

It's a calculated risk, asCanada'sother ambitions at the negotiatingtable aim for billions in new export growthfor other agricultural products.

This does not dismantle the supply management system, but shrinks it.

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Then there's the dairy processors: wouldthey need transition assistance too? They'restrugglingto becompetitivein an uncertain trade climate.

Ten per cent less domestic milkwould destabilize thesupply chain and potentiallyincrease the consumer price of domesticallyprocessed dairy,if fixed costs remain the same with lower volumes. Alternatively,local plantsmayclose.

In some places, Quebec and Atlantic Canada especially, competitiveAmerican dairies are only a few hours' drive away.

Uneven playing field?

The U.S.industry, anxious about its losses under the Trans-Pacific Partnershipin competitive globaldairy markets, was pressuring for up to 15 per cent additional market access in Canada.

"They don't want to be a dumping ground,"Leduc says."Why should we open our markets for dumped products from the U.S., or anywhere else?"

American negotiators favour a "tonne for tonne" approach: each tonne given up to new imports would require a tonneof exports to somewhere else; in this case, Canada.

But the U.S. industry is about 10 times the size of Canada's. A tonne there is less significant to the overall U.S. picture than a tonne in Canada.

"To me, that's not a level playing field," Leduc says.

Dairy farmers were hopeful, particularly with comments in the mediathis week suggestingNew Zealand wasn't going to get the "gold-plated" deal it sought from the U.S., perhaps trying to lower expectations.

Fast's office won'tconfirm or deny anything, sayingthroughout the talks that Canada's not"negotiating in the media."

Late Friday, his spokesman emphasized to CBC News that negotiations are still ongoing and no final offer has been made.

"Prime Minister Stephen Harper will only sign an agreement that's in Canada's best interest," said Rick Roth.

"Those who know aren't talking, and those who are talking don't know," saysAdam Taylor, who worked forFast during the EU talks but is now a directorwith lobbying and communications firm Ensight Canada.

Taylor thinks Canada's negotiating hand remains strong, despite the election.Key staff in the minister'sand prime minister's offices stayedoff the campaign to focus on the trade deal.

"The government won't try to sell a bad deal or negotiate a bad deal just for the sake of a deal," Taylor said. "The worst thing they could do is negotiate a bad deal, lose the election, and then have it exposed as a bad deal by their successor or have to live with it if they win."

Left in the dark?

"We have had comprehensive, broad consultations with every sector of our economy," Fast said Wednesday during an interview with host Rosemary Barton on CBC News Network'sPower & Politics.

Thisdairy deal took shapein Maui. But stakeholders saytheir conversations were one way they talked, while government officials simply listened, offering no scenarios. Since then, silence.

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Dairy playersalso heard nothing in the final run-up to the EU deal.

Other supply-managed commodities, such as chicken, were not part of the Europe deal. This time, they'venot been told they're exempt.

Quebecdairy farmers, often the most anxious and politicallyvocal,demonstrated inMontreal before Thursday's leaders'debate.

But the political impact is not limited to the few seats the Conservatives still hold in that province. The effects could bespread across other rural ridings. Ontario seats like Perth-Wellington, won by a Conservative in 2011 who's not running for re-election,could swing.

The American hostsdelayedannouncing ministerial talksuntil the last minute, perhaps seekingassurances that enough compromise work had been done to ensure thingsconclude this time.

In Thursday's French-language leaders' debate, Stephen Harper said he always defends supply management in trade talks.

This deal is expected to conclude less than three weeks before voting day.