Trump has attacked Canada’s ultimate sacred cow, our protected dairy farms, in the lead-up to trade talks.
This is nothing new but what has changed is that Canada’s cows are on the radar screens of other prominent politicians south of the border. Most significantly, House leader Paul Ryan is from the dairy state of Wisconsin and House Intelligence Committee Chair Devin Nunes is a California dairy farmer. Both are Trump allies.
Negotiations over NAFTA “tweaks” must win Congressional approval and while the cows may not, and should not, be a deal breaker, Canada may be forced to give up something else that is more important at the negotiating table.
And that list is long and worrisome, say trade watchers.
This is another reason why Canada should phase out its protectionist dairy system that guarantees farmers excessive prices and protects them with tariffs on imports as high as 300 percent.
Canada should have scrapped this system (called supply management) years ago but the political obstacle is the fact that half of Canada’s 11,000 dairy farms are located in Quebec and so are most of our Prime Ministers.
The Organisation for Economic Co-operation and Development (OECD) estimates this protectionist system results in annual overpayments of $3 billion by Canadian consumers for dairy, poultry and egg products each year.
Naturally, resistance to change is fierce and some Quebec officials even bandy around a figure that if the system was scrapped Canada’s taxpayers would owe dairy farmers $20 billion in compensation.
“Canada is not a trade problem to the U.S. and that must be communicated at every level.”
That’s silly. Using that logic, taxpayers owed Alberta’s oil industry $100 billion a year in foregone revenues because the Keystone XL pipeline was delayed and rejected by Washington.
A phase-out of protective dairy and poultry prices and tariffs – if commensurate with the removal of subsidies for US farmers in other commodities – would be good for Canada for two reasons. It would take an irritant off the table and, also, replace a costly system with a better one. There’s no reason Canada couldn’t replicate the New Zealand model which converted its coddled dairy sector into the world’s biggest dairy exporter.
Cows aside, there is much more at stake this time for both sides.
The U.S. wants more access in Canada for its agricultural products, but Canada wants more access for beef and other products in the U.S.
The U.S. wants to get into the protected telecom and banking industries in Canada as well as professional services. Canada wants more access to services south of the border.
The U.S. wants the trade deal to have jurisdiction over sub-national governments and crown enterprises. This would require provincial approvals and is something that the Europe-Canada trade deal insisted on and obtained.
Canada, in turn, would ask for reciprocity in all 50 states where most “Buy America” policies are embedded.
The Americans are looking at increasing the 62.5 percent rules of origin threshold for tariff-free status in autos and other manufactured products entering the U.S. If increased to 70 percent, many Mexican plants would be shuttered and relocated back to the U.S. or Canada.
For Canada, the most important overall anti-trade policy in the U.S. is “Buy America” and this must be on the table, too.
The tone must also be accurately set. Canada is the only one of America’s top five trading partners where Americans enjoy a trade surplus. Meanwhile, America has ruinous trade deficits in the hundreds of billions annually with China, Mexico, Japan, and Germany.
The facts of the matter are that the Canada-US trade relationship is the role model for the rest — two nations who buy and sell $2 billion a day of goods and services almost in perfect harmony.
Canada is not a trade problem to the U.S. and that must be communicated at every level.
The point is that Canada must publicly agree with Trump that the dirty little secret about globalization and multilateral trade deals has been that the middle classes and manufacturers in both are countries have been damaged over the years by offshoring.
Canadian Press/Justin TangFormer Prime Minister Brian Mulroney gives the keynote address at the Canada 2020 special event entitled “The Next Big Thing For Canada” in Ottawa April 8, 2014.
“NAFTA would never have passed today,” said former U.S. Ambassador James Blanchard at a recent Canada-U.S. Law Institute conference. “So there are many headwinds to negotiations. “Canada should find a backchannel to Donald Trump and come up with a deal, aside from all the negotiations.”
That’s very good advice.
The best “back channel” is former Prime Minister Brian Mulroney who serenaded President Trump recently by singing “When Irish Eyes are Smiling” at a fundraiser at Trump’s Mar-a-Lago.
Not coincidentally, that was the song Mulroney sang with president Ronald Reagan in 1985 that created a friendship that led to the Canada-U.S. free-trade deal in the first place.
It’s now 2017, and anti-trade sentiments fill the airwaves, but the U.S. and Canada need an encore.
First published in National Post April 21, 2017
