Trade agreements generally allow certain products to be imported into Canada without duty. The import of these products are managed through import permits known as tariff-rate quota (TRQ).
TRQ holders are allowed to import a specific amount of a certain product during a specified period. For supply managed products, like dairy, TRQ are administered through managed allocation. This means that the Canadian government decides which companies, groups or individuals receive the TRQ each year and can then import products with little or no duties.
Right now, the government is currently conducting the second phase of a review of allocation and administration of dairy tariff rate quota (TRQ). Ensuring that these TRQ are allocated to dairy processors is a priority for DPAC.
Will dairy processors actually use the TRQ if they receive them?
Canada’s dairy processors have a long history of fully utilizing their TRQ under WTO and, more recently, under CETA. Nevertheless, when market access concessions are made, Canadian dairy processors have always partaken in international trade in good faith. They have a proven track record as serious importers, with deep expertise and knowledge of consumer preferences and trends.
Allocating TRQ to dairy processors is one of the tools available to mitigate economic harm to the Canadian dairy sector. It is important to remember that TRQ are not a complete solution; but, by simply allowing processors to invest in the import market through TRQ, the Canadian Government can help those processors transition to their new market reality.
While it would be logical to think that the companies that best know the market would be first in line to receive TRQ, this isn’t always the case. For example, when the government allocated CETA cheese TRQ in 2016, half went to retailers and distributors. This not only had significant consequences for Canadian cheesemakers, it destabilized the entire Canadian supply management system.
- A loss of domestic market for Canadian cheesemakers and dairy producers
- A disruption of the Canadian wholesale price structure of cheese, resulting in a squeeze in dairy processors’ margin
- A weakening the value of dairy processors and dairy farmers’ investments
- Exacerbated power imbalances between retailers/distributors and processors