U.S. wants to end Canada's supply management for dairy, poultry, eggs

The United States has lit the fuse on one of Canada's most politically explosive trade issues, asking in NAFTA talks for an end to the supply management system for dairy, chicken, eggs and turkey within the next decade.

With that demand, the U.S. has now adopted a highly aggressive posture on virtually all the key issues expected to arise in the current NAFTA talks: it has asked to erect trade barriers in its own politically sensitive sectors, while eliminating them north of the border.

The latest demands come near the end of a week-long round where American negotiators dropped one bombshell demand after another, leading the other countries to question whether the U.S. goal is to actually reach a deal or to blow up NAFTA altogether.

Two sources told The Canadian Press the request came on Sunday evening, catching some on the Canadian side off-guard, since they hadn't expected the highly contentious issue to arise during the current round.

One source said the supply-management request came with an initial phase-in period of 5% more market access per year, leading to total duty-free, quota-free trade in protected supply-managed areas within 10 years.

That adds dairy, poultry, and eggs to a list of irritants that includes auto parts, textiles, trade-enforcement panels, Buy American rules for public works and a proposed five-year termination clause embedded in the agreement, with the countries holding not just different positions, but sitting on opposite sides of gaping ideological differences.

"Outrageous," said Pierre Lampron, president of the Dairy Farmers of Canada, of the latest proposal.

"It would be the end of supply management.... We are not surprised by the U.S. demands, they are in line with the demands they have made in other sectors."

The Canadian government, meanwhile, is calling the idea a non-starter.

Canada's system of protections was born from a 1960s effort to stabilize dairy prices, and was later emulated in other industries. It works by limiting imports and setting fixed prices.

The system's critics said the tightly controlled program stifled innovation, barred Canadian companies from selling onto international markets, limited choice at the grocery store and saddled Canadian consumers with higher prices.

The U.S. move was praised by the Montreal Economic Institute, a free-market think tank in Montreal, which urged Canadian policy-makers to seize the opportunity to dismantle a system that it said costs Canadian families an extra $339 a year in grocery bills.

"You can't on the one hand defend tariffs that sometimes reach 300% for supply-managed products, then accuse the American government of being protectionist," said Alexandre Moreau, a policy analyst with the institute.

"That being said, the Canadian government should also make sure the Americans abolish their own dairy programs, and obviously offer fair compensation to farmers for their (supply-managed) quotas."

Therein lies the challenge.

Defenders of the current system said eliminating it would create new problems -- starting with the billions it would cost to buy out existing quotas. They said the status quo provided stability in rural communities, allowed farms to survive without boom-bust cycles, and made taxpayer bailouts unnecessary. The U.S., meanwhile, maintains numerous support programs to prop up its farmers, they note.

No major Canadian political party has ever opposed the system.

The federal Liberal government had said entering the talks it did not want to even discuss supply management, having promised to maintain the system. Agriculture Minister Lawrence MacAulay said Monday: "I've indicated quite clearly that our government is going to fight to make sure (supply management) stays in place. To deal with anything else is simply a non-starter."

The U.S. has now tabled a series of positions far outside the realm of what Canada said it was prepared to negotiate, prompting fears that a deal may be slipping out of reach.

Indeed, the prospect of a deal by year's end already seems impossible. With Mexico and the U.S. embroiled in national elections next year, the countries fear that a failure to get a deal by early next year will push the talks into 2019.

U.S. President Donald Trump, meanwhile, keeps threatening to cancel the existing agreement, to force concessions from the other countries.