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supply management

Canada's supply management system shields fewer than 20,000 farmers behind a massive tariff wall and forces millions of Canadian consumers to pay inflated prices for milk, cheese, eggs and chicken.JENNIFER ROBERTS

Stephen Harper may want to join the most important free-trade talks of the decade, but to do so he must be prepared to open up Canada's sheltered and politically powerful dairy and poultry sectors to more foreign competition.

Canada has previously been reluctant to pay this price of admission for the Trans-Pacific Partnership talks, led by the United States. But as signs grow that this broad multicountry deal could eclipse NAFTA in importance, Ottawa feels compelled to sign on.

Trade experts say there may be a middle path for Canada.

The protectionist tariffs shielding dairy and poultry products from foreign rivals, for instance, are so high – from 150 per cent to nearly 300 per cent – that Ottawa could afford to trim them sufficiently to abide by a deal without destroying these protected sectors. Or it could offer limited duty-free access.

It's still not likely to be an easy feat. Canada has always had two radically different trade policies for farmers. It tries to open markets abroad for beef, grains and oilseeds while fending off foreign competition for heavily regulated dairy and poultry producers, who cherish their protected farms.

Peter Ruiter, a dairy farmer in southern Ottawa, said he thinks his industry will survive Trans-Pacific talks unscathed because most parties to the discussions will have something they want to shelter. "The U.S. government will want to protect their cotton farmers. The Japanese will want to protect their rice farmers," the 42-year-old producer said.

The Trans-Pacific Partnership negotiations, which include countries from Vietnam to New Zealand to Malaysia, seek to forge a massive free-trade zone – one that President Barack Obama's administration has said will "set a new standard for global trade." Japan recently joined and Mexico is also asking for a seat.

There's a new urgency to striking a free-trade pact that, even without Mexico and Canada, would unite 600-million people in nations that produce $20-trillion in annual economic output.

The weakened U.S. economy can't be relied upon to bolster the fragile global recovery – and boosting commerce with Asian markets offers another route to spur worldwide growth.

Mr. Harper's announcement Sunday that Canada wants a place at the talks came two days after his Conservative government warned Washington that Ottawa may have to pay more attention to Asia. Finance Minister Jim Flaherty said Friday the U.S. government's decision to delay approval for a Canadian pipeline for up to 15 months meant Ottawa would have to expedite oil sales to Asia.

A former senior Canadian trade official said expanding trade with Asia is not the Harper government's only reason for joining the Trans-Pacific talks.

John Weekes, Canada's chief NAFTA negotiator, said Ottawa can't afford to be left out of talks that appear to be offering signatories a deeper economic relationship with the U.S. than can be found in the North American free-trade agreement.

"What we're talking about here – if it really does become what Obama says it will be – is we're renegotiating NAFTA in the same way we renegotiated the Canada-U.S. FTA when we started the North American free-trade talks."

On Monday, both the Harper government and Canada's dairy farmers played down the likelihood that this country would have to scale back tariff walls keeping out foreign milk and poultry.

This country has negotiated more than eight free-trade deals without having to sacrifice protections for these sectors, Dairy Farmers of Canada noted in a statement.

These so-called supply managed industries are largely shielded from foreign rivals while production and prices are set by producers in a command-and-control approach that critics say hikes prices for Canadian consumers.

Mr. Weekes, however, said U.S. pressure could one day spur Canada to make concessions, such as offering some duty-free access or trimming tariffs.

When the 11th hour of talks arrives, he said it's hard to imagine Washington scaling back American dairy subsidies while allowing Canada a pass.

"They have probably concluded they're going to have to make some liberalization on dairy but the last thing they'd want to have happen is … the Canadians in the background saying 'We're not going to do anything,' " he said.

"How would the Americans explain that to their domestic industry?"

Deborah Elms, a Singapore-based scholar and Trans-Pacific talks expert, said it's still unclear exactly what happened at the Honolulu APEC summit where Canada announced it wanted to join the negotiations.

"There are all sorts of confusing signals out of Hawaii," said Prof. Elms, with Nanyang Technological University.

"What I'm getting is that the Americans did not want Japan to join by themselves. Therefore, they went back to Canada and asked them to join again."

Prof. Elms suggests Canada may have been granted some sort of guarantee by the United States that it would not have to make concessions that would erode the tariff walls protecting the dairy and poultry sectors.

"It is possible that some sort of deal may have been cut to allow Canada to keep supply management," she said.

"Certainly, Canada's trade minister's statement [Ed Fast]suggested that he thinks the system is not about to be dismantled in the [talks]" she said.

"I don't think he would be so strongly out in front on this issue if he didn't have some assurance."