Dairy remains key issue in US-Canada trade dispute

Once again, the simmering trade dispute between the US and Canada has flared up. Greater market access for US dairy products in Canada is a recurring element of the dispute. Canada believes it has already made substantial concessions to the US.As Canada is unwilling to make further concessions to US demands, US President Trump has imposed a 50% tariff on a package of Canadian exports worth C$28 billion (€17.3 billion). Canada has responded in kind.Dairy is such a major point of contention because Canada shields its domestic dairy market through a quota system and restrictions on imports. This is intended to protect its own livestock farming and dairy sector. Canada is one of the few Western countries to do so, although it is by no means alone globally. India, for example, also strongly protects its domestic agricultural sector.Underlying the dispute is therefore a fundamentally different view of how markets should operate, but the US is also frustrated by the most recent trade agreement with Canada. Under the agreement, Canada grants greater market access to US dairy products through a larger tariff-rate quota. However, this does not mean that anyone in Canada can simply import cheaper US dairy products under the additional quota.Initially, Canada allocated these import rights only to its domestic dairy industry. For perhaps predictable reasons, the industry made little use of them. Following US protests, it was agreed that traders and other intermediaries would also be allowed to import dairy products from the US, but retailers remained excluded. Canada is standing firm on this point, much to the anger of the Americans. The US is particularly keen to use the retail sector to sell significantly more, and cheaper, US cheese in Canada.Some of the US frustration therefore appears understandable, particularly as Canada does allow its domestic retail sector to import European dairy products under a trade agreement with the EU. Canada is therefore applying different standards. At the heart of the dispute, however, remains Canada's determination to continue protecting its domestic dairy market and, with it, a significant amount of employment in rural communities. A less frequently mentioned point of contention is the quality of US and Canadian dairy products. The Canadian dairy industry applies high quality standards, comparable with those in North-West Europe. The situation is different in the US. Standards for factors including somatic cell counts and bacterial counts in milk are less stringent, and there are significant differences in other areas as well. Even US Grade A milk is subject to lower standards than ordinary Canadian milk. Canadian concerns have only increased since the US government implemented substantial spending cuts early last year, including to milk quality control.