Cheese Tariff Rate Quotas (TRQs) are important because they permit limited quantities of cheese to be imported without paying Canada’s 245.5% border tax.
For example, if cheese that costs $10/kg before it crosses the Canadian border is subject to 250% customs duties of $25, it ends up costing $35/kg when it crosses the border.
In this example, the TRQ allows Canadian consumers to buy cheese that has an import price of $10/kg, rather than $35/kg.
On November 26, 2018, Global Affairs Canada (GAC) announced its “interim” allocation of the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP) Cheese TRQs.
GAC’s “interim” TPP TRQ allocation gave 85% of the TRQ to Canadian cheese processors on a “market share basis”.
Processor Market share is based on how much Canadian cheese a processor manufactures.
Basing the allocation on market share in the highly concentrated Canadian cheese processing sector means that the processor 85% TPP TRQ allocation largely ended up with 3 big Processors — Lactalis, Saputo, and the dairy farmer organization, Agropur Coopérative.
When GAC made its “interim” TPP allocation on November 26, 2018, GAC also announced its TRQ Review, and highlighted the importance of Canada’s international TRQ commitments and obligations:
Given the significant increase in Canada’s tariff rate quotas commitments in recent years, the Government of Canada will undertake a broad-based stakeholder engagement exercise in 2019 to review the overall administration of Canada’s systems of TRQs.
While TRQs will continue to be administered independently of one another, in accordance with Canada’s international obligations, the review exercise will ensure that TRQ allocation and administration continue to be conducted in an efficient and effective manner.
This exercise will commence in spring 2019.
Almost 6 months after GAC announced the Review on November 26, 2018, GAC launched Phase I of the Review on May 10, 2019.
At that time, GAC again highlighted the importance of Canada’s international TRQ commitments and obligations:
Global Affairs Canada (GAC) would like to inform you of the official launch of its public stakeholder consultation regarding the tariff rate quotas (TRQs) for supply-managed products established under
- the World Trade Organisation (WTO),
- the Canada-EU Comprehensive Economic and Trade Agreement (CETA),
- the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and
- potentially, the Canada-United States-Mexico Agreement (CUSMA).
The purpose of this consultation is to inform the decision of the Minister of International Trade Diversification regarding the allocation methods and administrative policies of Canada’s supply managed TRQs.
Phase I of GAC’s TRQ Review ended on August 31, 2019.
Phase II was launched almost 6 months later, on February 14, 2020.
In its February 14th explanation of why it is holding consultations, GAC made no mention of Canada’s international TRQ commitments and obligations.
Instead of recognizing the international trade treaties that create TRQs, GAC focused on Supply Management and the implementation and administration of TRQs. On February 14, 2020, GAC stated:
Implemented and administered by the department in accordance with the Export and Import Permits Act (EIPA), TRQs for dairy, poultry and egg products are a key pillar of Canada’s supply management system and make significant contributions to the national economy.
Cheese TRQs are not simply a key pillar of a domestic program. They are also an international trade treaty obligation.
Canada cannot continue to downplay international treaties and use Cheese TRQs as a domestic compensation scheme for Canadian dairy producer groups and processors.
On February 14, 2020, GAC proposed 7 policy options for the “Cheese of All Types” TRQs created by the WTO, CETA, TPP, and new NAFTA/CUSMA international trade treaties.
Six of these seven options would allocate 50-85% of the Cheese TRQs to Canadian cheese processors on a “market share basis”.
For example, for the TPP and new NAFTA, GAC’s first option is to allocate 85% of the Cheese of All Types TRQ to Canadian cheese processors on a “market share basis”.
This was how the TPP TRQ was allocated in 2019.
In 2019, for the three TPP Cheese TRQs, only 1,430,807 kgs of the total of 4,833,000 kgs were imported — which is a Fill Rate less than 30%.
This low Fill Rate is not surprising because, on February 24, 2020, the dairy farmer/processor Gay Lea Foods Co-operative Ltd. told Members of Parliament:
Canada’s not obliged to 100% fill it or even to fill it.
It should be brought in only if there are domestic needs to be fulfilled.
On February 14th, GAC advised that, “The long-term allocation and administration policies for each TRQ will be published on September 1st, 2020”.
On May 1, 2020, Canada’s Minister of Small Business, Export Promotion and International Trade suspended the GAC TRQ Review.
In the GAC TRQ Review, the ICCC has based its position on Canada’s international trade treaty obligations, and the following six fundamental principles:
- Canada’s trading partners’ cheese exporters must be able to sell to their customers, and not be forced to sell to Canadian dairy farmer/processors, who are their competitors.
- Canada’s imported Cheese TRQ Allocations should not be based on domestic cheese sales or production.
- Imported Cheese TRQ Allocations should be based on import performance demonstrated by an applicant’s preceding year market share of actual total direct importations of cheese that is consumed in Canada.
- To enable New Entrants without TRQ to become eligible for TRQ, the first year of their allocation should be based on their preceding year volume of imported cheese sold in Canada.
- Cheese TRQs must be allocated to persons most likely to use them and, therefore, no Transfers should be permitted.
- The minimum threshold of import activity is the amount of imports that results in an economically viable TRQ allocation of a container load – 20,000 kgs.
These six Allocation principles respect Canada’s international trade treaty obligations, ensure that Canadian consumers will get more cheeses without transfer costs, and make sure Canada’s trading partners get what they bargained for in good faith.