Canada and New Zealand in Historic Trade War Over Dairy

With talk of “betraying our friendship” all being done in the very polite way that exemplifies both countries, Canada and New Zealand are in the midst of a historic trade war over dairy products.
In September 2023, New Zealand won a trade dispute under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which found Canada was in breach for blocking dairy imports and gave it until May this year to fix things.
But after it failed to do so, New Zealand on Oct. 18 decided to take the unprecedented step of invoking a clause which forces Canada to enter into compulsory negotiation. Once that concludes, it then has 30 days to abide by the terms of the agreement, and if it does not, New Zealand can take further action.
“New Zealand takes its obligations under trade agreements seriously,” its Trade Minister Todd McClay said. “The CPTPP is one of the highest quality agreements signed by a group of like-minded economies. Parties to the agreement understood the commitments they were making when the agreement was signed, and it is important they honour them.”
Dairy quotas had been agreed between both countries as part of the negotiations leading up to the signing of the agreement in 2018.
Canada’s dairy tariff rate quotas (TRQs) set out how much dairy product can cross its border tariff-free, and New Zealand claims they treat it unfairly.
“It’s hard to think of two countries with warmer relations than New Zealand and Canada,” she said.
“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.”
If Canada could not comply, she said, it should be “booted out of the deal.”
New Zealand first formally notified Canada of the dispute in May of 2022 by submitting a “request for consultations.”
That failed to resolve the issue, so later that year it requested the establishment of a panel to hear the dispute.
Australia strongly supported New Zealand’s position, making its own submission as an interested third party.
At the time, both dairy companies and farmers expressed their support for New Zealand’s stance.
Dairy Companies Association of New Zealand executive director Kimberly Crewther said Canada was a “very protected dairy market” with tariffs of up to 300 percent and was restricting eligibility for the import licenses for quotas.
“That’s resulting in significant underutilisation of those quotas,” she said. “Last year, it was only nine percent.”
Crewther said she was not surprised the consultation with Canada was not successful.
Trade minister at the time, Damien O’Connor, said the tactic had cost New Zealand exporters about $120 million over three years.
Canada has yet to formally respond to New Zealand’s latest move, but it seems likely that any concession will be met with fierce opposition from its vocal farming lobby.
In Alberta, the provincial government is currently trying to fend off the Bloc Québécois party’s legislation that aims to prevent Canada’s supply-managed sectors, including dairy, poultry and eggs, from being included in any future international trade negotiations.
Alberta’s Minister of Jobs, Economy, and Trade Matt Jones said the move would “undermine Canada’s reputation as a reliable trading partner.”
While this is the first time Canada has been challenged under the provisions of the CPTPP, it’s not the first time it’s been taken to an international disputes panel by its trading partners.
In 2022, it lost a similar case against its dairy quotas brought by the United States and Mexico under the three-way USMCA agreement.