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Dairy cows in Eastern Ontario on Wednesday, April 19, 2017. U.S. Donald Trump has sharply criticized Canada’s supply-managed dairy sector.

Sean Kilpatrick/The Canadian Press

Lawrence MacAulay, the federal Agriculture Minister, vows Canada will defend its controversial support for dairy farmers ahead of North American trade talks slated to start in August.

"We're the government that put supply management in place and we're the government that's going to defend it," Mr. MacAulay said, without elaborating, by phone from Savannah, Ga., where he held talks with his counterparts from the United States and Mexico in advance of new negotiations over the North American free-trade agreement. Supply management was created by the Liberal government in the 1970s to stabilize farmers' incomes.

Mr. MacAulay said he is not a trade negotiator and that there were no discussions with Sonny Perdue of the United States and Jose Calzada of Mexico over what would be on the table in the new talks. Rather, the goal of the meeting was to build "rapport" and co-operation.

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He predicted the agreement covering Canada's $31-billion in agriculture and food trade with Mexico and the United States would get a mere "tweak."

"It's certainly obvious that NAFTA has been a very valuable asset to the three countries and we have to make sure it continues in that manner," he said.

However, there are numerous signs Canada's dairy system of set prices, production quotas and 270-per-cent import tariffs will be at the heart of new trade talks.

U.S. President Donald Trump called for the renewal of the 1994 pact, saying it was a bad deal for the United States and cost the country jobs.

The U.S. dairy industry – and Mr. Trump himself – has singled out supply management as unfair to U.S. producers.

Mr. Perdue has said he does not object to the supply-managed dairy regime, but said Canada's production of a new class of dairy product not covered in NAFTA, ultrafiltered protein concentrates used in food production, was unfairly shutting out U.S. producers.

"If you want to manage your dairy supply with supply management, that's fine," he said in a statement after visiting Toronto this month. "You just need to manage it and not overproduce to create a glut of milk solids on the world market that's being dumped at unfair prices."

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Bobby Seeber, a former trade adviser to the Ontario government, noted Canada made concessions to allow more dairy imports in free-trade talks with Europe and the Trans-Pacific Partnership. The dairy industry's protections are no longer "sacrosanct," he said in a recent speech to members of Ontario's food and beverage industry.

"There is going to be a concession" in NAFTA on dairy products, Mr. Seeber predicted, adding drug patents, cars and softwood lumber would also be the focus of talks.

Domestic critics of the dairy regime say it artificially inflates prices paid by consumers and food processors. And the push to sign new trade deals and a glut of milk products have undercut the system's desirability. Still, governments seeking to unwind it would face a complicated – and expensive – battle to placate the farmers that rely on it.

Laura Dawson with the Canada Institute says Canadian business leaders need to remind Main Street U.S. how important trade with Canada is to their economy
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