Canada is promising to "defend our position" over dairy tariff rate quotas (TRQs) after New Zealand escalated a trade dispute.
"At a time when global food security is under threat, we must maintain a strong and vibrant domestic dairy industry, and we will continue to defend our position during the dispute settlement process," a Canadian government spokesperson said.
Trade Minister Damien O'Connor on Monday said New Zealand has requested the establishment of a panel to hear a dispute that Aotearoa launched in May. Formal consultations between New Zealand and Canada in June failed to find a resolution.
New Zealand is concerned about how Canada is implementing dairy TRQs under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
TRQs set out how much of a product can be imported into a country without tariffs or at a lower tariff rate. New Zealand says many of Canada's TRQs have been unfilled, representing a loss by Kiwi dairy exporters of about $68 million over two years.
"This is ultimately about ensuring that our exporters can access the benefits that were agreed under CPTPP," said O'Connor. "These were hard-won negotiated outcomes, and it is important that our exporters have confidence and certainty in their ability to enjoy them."
Canada has now responded. In a statement to Newshub, Grantly Franklin, a spokesperson for Global Affairs Canada said its government would "always stand up for Canada's dairy industry, farmers and our supply management system".
"Canada is a fair trading partner, a strong proponent of rules-based trade and the dispute settlement process, and we take our commitments under the CPTPP very seriously.
"At a time when global food security is under threat, we must maintain a strong and vibrant domestic dairy industry, and we will continue to defend our position during the dispute settlement process."
O'Connor on Tuesday said it was a "sensitive issue" as New Zealand and Canada are "very strong, like-minded partners on just about everything". Dairy is "sensitive" for both countries, the minister said.
"I think that everyone's been trying to come up with a solution, but in the end we haven't been able to. That's why there is some goodwill that was there," he said.
"I guess if we were working with someone who didn't think we can cooperate with, we would have gone straight to the panel. But we were hoping that there was a way through, clearly not."
He said it was "disappointing".
"CPTPP is a very hard fought and a very valable agreement. All the parties to it understand that. We have new applicants. So upholding the standards is really, really important as well."
New Zealand and Canada will now engage in a process to select three individuals to sit on the panel, while other CPTPP countries will have 10 days to join the dispute as third parties.
O'Connor expects the panel will be set up over the next three months and then it will have 180 days to report back.
The Government also has National's backing. Trade spokesperson Todd McClay said it was an important issue for New Zealand.
"New Zealand needs to stand up against people who they believe are anti-trade or are against competition. The Government needs to treat this very sensitively because Canada is an ally and a good friend of ours, but I do support the action they have taken."
Prime Minister Jacinda Ardern revealed on Monday that she told Canadian Prime Minister Justin Trudeau "to his face" that she believed the dispute should be escalated.
"I think it would be unusual that given the amount of contact we have for me not to raise the issue. Our relationship with Canada means I can be very forthright," Ardern said.
"If we can speak frankly as leaders and know we are between ourselves not going to be able to resolve it, it was time to escalate. That's what we've done."
McClay said it is something that should be formally dealt with as it is a "matter of trade law".
"Whatever Jacinda Ardern talks to Justin Trudeau about on the airplane rides they have, I am not sure…It is important it goes through the process," he said.
"I think in the end the case will be found in New Zealand's favour. It will set precedent and send a signal that free trade is a good thing and countries that look to protect their industries don't help the world economy, they need to meet their obligations."
Ardern and Trudeau have a warm working relationship. In September, Ardern flew from the Queen's funeral in London to New York for the United Nations General Assembly on the Canadian Prime Minister's plane. That apparently came after she sent Trudeau "a quick text message".
