New Zealand's Prime Minister is warning that unless Canada abandons its protections for the dairy industry, it will not be allowed to join a landmark trade agreement being negotiated among Pacific nations.
Canada has no free trade agreements anywhere in Asia, and a failure to sign on to an expanded Trans-Pacific Partnership would leave this country shut out of the Asia-Pacific region, which is widely viewed as the engine of economic growth in the 21st century.
John Key, who was in Ottawa on Wednesday for talks and dinner with Stephen Harper, said he told the Prime Minister that he hoped Canada would ultimately join the TPP, as it is commonly called.
But "I made it clear, from New Zealand's point of view, we would want to engage in flexible and comprehensive agreements," he maintained.
When asked whether any nation would be permitted to join the agreement while carving out protections for its dairy industry, he replied: "That is not our intention. No."
The United States, Australia, Peru and Vietnam are seeking to join the existing TPP, which consists of New Zealand, Chile, Singapore and Brunei. U.S. President Barack Obama sees an enlarged TPP as the key to expanding his country's trade in the Pacific region, where China dominates.
The Conservative government originally rejected a request to join the TPP negotiations, because Canada refuses to dismantle the quotas, marketing boards and tariffs - collectively known as supply management - that protect the dairy industry. The government changed its mind when the United States agreed to join the talks last year. But Ottawa's request came too late, and Canada is effectively shut out of the negotiations.
"We are at a time in our international trade policy that we have to weigh the costs and benefits of maintaining supply management when it is clear that this system of protection is jeopardizing our access to a number of trade agreements, not only bilaterally but also regionally and globally," said Yuen Pau Woo, head of the Asia Pacific Foundation of Canada.
The U.S. also protects its dairy industry. But Mr. Key believes that opportunities to pursue new and expanding markets in Asia will trump protectionist fears in both the U.S. and Canada.
The Prime Minister argued that it would be in Canada's interest to compete in global dairy markets, where New Zealand is a dominant player, rather than hide behind tariff walls.
"There is going to be an explosion and particularly for protein, as the middle classes of Asia emerge," he predicted.
With a report from Andy Hoffman
John Ibbitson