While the Trump tariffs have so far singled out allegedly unfair treatment of the US by Canada when it comes to border protection and the fentanyl crisis, the question remains if focus might shift to Canada’s supply management system.

A recent announcement from Canada Border Services Agency (“CBSA”) indicated Canada’s dry wheat quota had already been surpassed on January 12, mere weeks into the year.  This raises questions about the fairness of the tariff rate quota (“TRQ”) system for anyone but the largest Canadian importers who have the means to take advantage of it. 

Tariff Rate Quotas – What Are They?

TRQs are intended to protect Canadian farmers by imposing limits on the quantity of certain products that can be imported at lower tariff rates (“within access”).  Once that quota has been met, the product can still be imported, but with a significantly higher tariff rate (“over access”).  The purpose is to protect Canadian farmers and manufacturers, giving them a competitive advantage by increasing the price of imported alternatives.   

An Unfair System

The fairness of TRQs has been called into question – by critics within Canada and beyond.

While TRQs crucially protect Canadian farmers and allow them to remain competitive in the market, small and medium-sized importers often find themselves struggling to compete with large market players.  Taking advantage of their superior resources, larger companies can buy in bulk at the beginning of the year, while smaller players lack the cash flow or logistics to be able to do the same, unable to access lower tariff rates, particularly for products such as dry wheat, where the TRQ is low, but demand is high.      

From the perspective of American farmers, TRQs and their administration may be viewed as an unfair impediment limiting their access to the Canadian markets as negotiated in CUSMA, preventing them from selling their goods in Canada at a competitive rate as the tariffs inflate their prices.  American and New Zealand dairy farmers have previously made use of dispute resolution systems under their respective trade agreements arguing that Canada’s administration of its supply management system did not satisfy its trade agreement obligations.  These challenges have been met with mixed success.  This, along with the current trade environment, suggests it is likely that tariffs may be used to obtain concessions to facilitate American access to the Canadian market or a renegotiation of CUSMA.

Notwithstanding concerns on both sides of the border with Canada’s supply management system, justified as they may be, Canada’s government is signalling that no changes to this system are expected for the time being. 

Takeaways

Despite criticism from parties both inside and beyond Canada, changes to Canada’s supply management system are unlikely.  While the focus of the Trump tariffs so far has singled out border protection and the fentanyl crisis, importers should prepare for that focus to potentially shift as tariffs may be used to attempt to pressure the Canadian government into concessions.  Specialized advice may be needed to navigate any unexpected changes to supply management.

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