Canada-EU Comprehensive Economic Trade Agreement (CETA) threatened by dispute over cheese quota

A CBC report issued today  details how plans to bring in the Canada-EU Comprehensive Economic Trade Agreement (CETA) by July 1st could be scuttled by a new “row” over Cheese quota.

According to the report, an EU official (speaking anonymously) states “Canadians haven’t been transparent enough about several aspects of CETA’s implementation…, and presented the cheese quota decision as a non-negotiable fait accompli. It was a final straw for upset Europeans who had been otherwise eager to get on with the deal.”

The article further details EU skepticism relating to “unused quota”.

“The source said Canada informed the EU that 60 per cent of the new import quota would go to domestic dairy producers and processors. Europeans fear they won’t use it, so fewer new cheeses compete with their domestic products.”

These fears are largely based on a lack of understanding as to how the agreement prevents these types of situations from occurring.

Section B of Annex 2-B to Chapter 2 (National Treatment and Market Access for Goods) details how the quota for cheese is administered.

Specifically, Article 19 of this section states “An allocation holder that uses less than 95 per cent of its allocation in any one year may be subject to an under-utilisation penalty in the following year, in which it will receive an allocation that reflects the actual level of use of the previous allocation. An allocation holder affected by an under-utilisation penalty will be advised prior to the final allocation of the tariff rate quota.”

Reading this section of text may help allay the fears of this anonymous EU official, as any Canadian domestic dairy producer or processor who obtains a quota allocation, and does not use at least 95% of it will see their quota the following year decrease.

There are further protections found in the agreement that would prevent Canadian producers from holding quota “hostage”.

Article 19 of Annex 2-A to Chapter 2 of the agreement provides scenarios where, if a TRQ is under-filled (less than 75% used), then the CETA Committee on Agriculture must meet to “address the underlying causes of the under-fill or any other questions affecting the smooth operation of the tariff rate quota.”

Furthermore, if such an under-fill were to occur for 3 consecutive years, the TRQ quota allocation would revert to first-come first-served (FCFS) basis, where any Canadian stakeholder (including Canadian subsidiaries of European Cheese producers) would be able to use the quota without having a prior allocation in place.

Below is the exact text of the under-fill mechanism:

Under-fill mechanism

19. With respect to the tariff rate quotas set out in paragraphs 12, 13, 15, 16, and 17:

(a) If a tariff rate quota is under-filled, defined as less than 75 per cent of the annual aggregate quantity actually imported into the Party under the tariff rate quota in a given year, the Parties shall meet, upon the request of a Party, in the framework of the Committee on Agriculture established under Article 26.2.1(a) (Committees) in order to promptly address the underlying causes of the under-fill or any other questions affecting the smooth operation of the tariff rate quota.

(b) If a tariff rate quota is under-filled, defined as less than 75 per cent of the annual aggregate quantity actually imported into the Party under the tariff rate quota in a given year for three consecutive years, and where such under-fill is not linked to scarce supply or demand of the relevant product, the administration of the quota for the following year(s) shall be made on a first-come first-served basis. To demonstrate scarce supply or demand, a Party shall clearly demonstrate on a quantifiable basis that either adequate supply to fill the tariff rate quota is not available in the country of export or that the tariff rate quota quantity could not be consumed in the importing market. If the Parties disagree on the reasons leading to under-fill, the matter shall be subject to binding arbitration at the request of a Party.

(c) If subsequent to the under-fill referred to in (b), there is full use of the tariff rate quota, defined as 90 per cent or more of the annual aggregate quantity actually imported into the Party under the tariff rate quota in a given year for two consecutive years, the Parties may consider returning to a licencing system following consultations between the Parties on the necessity and opportunity of such reversion and on the features of such licencing system.