By Sarah Pittman
Published in the Hill Times

June 25, 2018

Say what you will about United States President Donald Trump’s G7 summit attendance earlier this month, he did manage to do one thing: rally a lot of Canadians against him.

A lot of what Trump said is nonsense, and Canadians are right to be angry. However, Trump’s targeted attacks of supply management should not deter us from the reality that we need to dismantle it. Ironically, calling out Canada on supply management may be the only thing that the other G7 leaders could have agreed upon. In fact, this is a good moment to finally take it down—but not because the Americans say we should. There are myriad reasons to end supply management, for domestic purposes and for international trade.

Ending supply management—which involves dairy, poultry, and eggs—is a good move domestically. Canadian consumers, especially lower-income households, pay far too much for staple, basic foods.

It hurts all other Canadians who produce goods and services for export, including by far the majority of other Canadian agricultural producers, because of similarly sacrificed leverage in every trade negotiation (not just NAFTA).

And the Canadian dairy industry itself is losing out on large, and growing, international opportunities. It is an archaic, preferential cartel that now makes a very small number of producers extraordinarily wealthy, at significant cost to the majority of Canadians.

It is bad for consumers, bad for Canada, and even bad for dairy farmers.

But let’s be clear: we should not end supply management because Trump had a temper tantrum about it.

Opening up Canadian dairy to global markets could end up hurting the American dairy industry in the end. Americans want access to our relatively small market. Without supply management holding them back, Canadian dairy farmers would be in a good position to not only make inroads into the huge U.S. market (we make excellent cheese, for example), but gain market share in dairy markets around the world, at the expense of the Americans. This includes the rapidly growing number of middle-income earners throughout Asia, where growing wealth and population size means they are hungry (and thirsty) for high-quality food products. All of this means that, when it comes to supply management, Americans should be careful what they wish for.

Beyond enabling Canadian dairy farmers to compete for market share around the world, ending supply management would also give us more leverage in free trade agreement negotiations, the most important of which right now is NAFTA. It is true that the U.S. is defiantly protectionist of several industries—but we are hypocritical to call this out, when we have our own small sector that reaps the benefits of protectionism.

In the critical NAFTA negotiations, the Americans have five major demands. These include: (1) tougher rules of origin on auto manufacturing; (2) new Buy American rules for government contracts; (3) a sunset clause to end the deal in five years unless all three parties agree to keep it; (4) removal of key dispute settlement provisions; and (5) dismantling or relaxing our supply management system for dairy (and poultry and eggs).

The first four demands are clearly not in Canada’s national interest, and Canada cannot accept them. However, Canada is also standing firm on “protecting” supply management, for purely political reasons. Not only is this not in Canada’s national interest, insisting on keeping it may jeopardize our chances for success on the other four key NAFTA demands—perhaps even for retaining the deal itself.

It’s clear that Canadians do not want to sacrifice NAFTA for supply management. In a national poll conducted last year at the start of the NAFTA talks, when told that the Americans were going to put supply management on the negotiating table, more than two-thirds of respondents were willing to negotiate on supply management either up front in exchange for gains in other areas or as a last resort if pressed by the Americans. Fewer than one in five wanted to defend it any cost while, at the other extreme, nine per cent wanted to dump it immediately.

The U.S. needs a “win” in order for us to keep the deal; Canada needs leverage to stay the course on the issues that we really need; and it is in Canada’s interest to dismantle supply management anyway. It will be costly, as appropriate compensation and transition assistance will be needed. But not doing so is already costing Canadians far more.

As angry as we are at Trump, his “tweet-storm” insults pale in comparison to the importance of NAFTA to Canada. While we would have to deal with Trump crowing about his negotiating skills, we would in fact be comforted with the knowledge that Canadians would pay less for dairy; that dairy farmers could compete and grow globally; and that the NAFTA renegotiations may have a happy ending.

– Sarah Pittman is a policy analyst at the Canada West Foundation.