TPP needs to be perfected and openly debated, but supply management should not prevent Canada from negotiating it.

The Trans-Pacific Partnership (TPP) negotiations have recently come back to the front pages, triggering unsurprisingly calls in Canada to defend supply management from the dairy producers’ representatives, officials and politicians responding that they will never surrender supply management. However, I am deeply skeptical about that latter commitment if the federal government was to face a choice between being excluded from the negotiations and increasing access to the Canadian dairy market, if it came to that and in these terms.

First, a few words about the TPP itself. It is part a new set of regional economic and trade agreements that includes the Canada Europe Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP).

These agreements intend to go beyond market access issues to set harmonized rules about trade and investment and are seen by the USA as core to their global strategy (This article in Foreign Affairs). These agreements are the subject of intense debate about their actual economic and strategic value  (Paul Krugman , The Economist, Martin Wolf, Lawrence Summers). Besides, their negotiations have been wrapped in secrecy, raising fear that corporate interests will be served first, especially in the light of the controversial Investor State Dispute Settlement (ISDS) clause. The latter may indeed contribute to define the balance of power between sovereign states and corporations (to get an idea of the debate on that subject, read this and this and this).

As a citizen, and considering the scope and reach of the TPP, I would like a more open debate on the principles and guidelines defining Canada’s position in the negotiations. So, I am not surprised that TPP and TTIP are encountering some resistance in the various countries involved in these negotiations. The completion of the TPP and its actual implementation are then still far from certain.

Back now to the recent headlines of US officials publicly requesting Canada to open its dairy market in order to stay in the TPP game. Canada might have some chips to bargain with (Keystone pipeline is one but a weakening one, apparent breach of NAFTA by US bank’s reform may have more traction) but I do not think they would be sufficient to avoid choosing between being part of the TPP and opening the dairy market.

Canada is not essential for the TPP’s success as far as the most important parties (The USA, Japan) are concerned. I do not think there would be too much procrastination about excluding Canada if it is politically more convenient to do so.

Now, is TPP essential to Canada?  Maybe not essential but not being part of a functioning TPP would be quite detrimental to Canada’s economy. Not that much because of market access issues but mostly because of the loss of attractiveness for investors and its ripple effect throughout our economy from R-D to infrastructures.

As far as the TPP negotiations are concerned, the most pressing issue is whether President Obama will be granted Trade Promotion Authority by the Congress. If not, the negotiation would probably stall if not die as the polarization of the US Congress is such that it brings too much unpredictability into the US negotiating position (This article in The Economist). The current politicking makes it hard to predict the outcome, with some simply asking for not hastening the negotiations. However, we cannot exclude the possibility that the Obama Administration will indeed be granted TPA and will look for accelerated negotiation rounds. So, if the USA keeps on asking Canada to open its dairy market as a condition to stay in the game, it will be very difficult for the federal government to elude a decision, and this even in the midst of an election campaign.

What would then be the most likely decision of our federal government?

On one hand, the Conservative government could be wary of opening the supply-management Pandora’s box. It is not a wedge issue. The privatization of the Canadian Wheat Board is not looking that beneficial to the farmers. The recent NDP victory in Alberta is challenging the Conservatives supremacy in the Prairies. The Conservatives need to make in-roads in rural Quebec where dairy producers are still seen as influential.

On the other hand, as outlined before, I do not think Canada can afford to be excluded of the TPP negotiations at this point. This government likes to present itself as a practical, result-oriented, reasonable government, working hard on ensuring Canada’s prosperity. Would it risk Canada being excluded from the TPP negotiations? Ultimately, I do not think so because that political inconsistency may come back to haunt the Conservative party.

Then, how would the government proceed? Most probably by committing to increase market access at a level acceptable by the US. The key elements to negotiate would be the class of products, the allocation process of the import quotas, and the time-frame of implementation. That would undoubtedly have consequences on the Canadian dairy industry, most of them detrimental in the short-term.

However, it is sterile to claim that Canada has to defend supply management at all cost. It is sterile, and it may even backfire. If a narrative can be built that says the dairy industry is weakening Canada’s position in the negotiations while a lot is to be gained, then it will bring a lot of scrutiny on supply management. Its shortcomings will be exposed and open for debate… which would be good in itself. Supply management is a public policy and as such should be submitted regularly to a thorough assessment of the relevance of its objectives and consistency of the underlying system. Its continuation should be publicly debated, beyond dogmas and opinion polls.

Finally, if the dairy market was more open to imports, that would not mean an overnight collapse of the dairy industry contrary to what is implied by the current use of a study on the economic contribution of the Canadian dairy industry (report available here). This report clearly demonstrates the extent of the contribution of the dairy industry to the Canadian industry and it is undeniably significant. It does not say though what share of this economic contribution is at risk, assuming an open dairy market in Canada. Is anyone really thinking that Saputo and Agropur would close down all their Canadian operations because of more open markets? Has supply management prevented any consolidation and rationalization in the dairy industry? It would be even more interesting to evaluate and compare different scenarios, under supply management and under open market, based on the economic contribution of the dairy industry at the 2025 horizon.

The significant contribution of the dairy industry to the Canadian economy, and its apparent reliance on a public policy to prosper oblige it to engage in a more sophisticated public discussion about its future than the current ‘’for or against supply-management’’ argument. Supply-management is a sound policy, but not always and surely not forever.