Canadian dairies get significant control over imports under TPP

TORONTO (Reuters) - Canada will give local dairy processors significant control over imports under a new trade deal with Pacific countries that opens the sheltered industry to further competition, according to a notice published by the federal government, which drew criticism from Canadian retailers.

New quotas created by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are similar to those meant to give U.S. dairy and poultry farmers new access to Canada under the new North American trade agreement known as USMCA.

The rules, which lay out who can receive quotas to import some agricultural products duty-free from countries that ratify the deal, vary between products, but in some categories nearly all the quotas are earmarked for Canadian processors. One quota covering "cheeses of all types" reserves 85 percent for processors, leaving 15 percent for distributors.

Saputo Inc , one of Canada's biggest processors,

welcomed the move and said in a statement on Tuesday that processors will get a "significant portion" of the quotas.

"I am delighted with the allocation. I think that the government is allowing the dairy industry to control our own destiny," Saputo CEO Lino Saputo Jr. told Reuters. "This is what we were hoping for."

It is not the first time Canada has taken the unusual step of giving local producers special rights to import, easing the pain of new competition.

Karl Littler, spokesman for the Retail Council of Canada, said the allocation looks like a subsidy.

"We find that, obviously, to be less than ideal, given that people buy their cheese from us, not from the producers," he said.

Saputo Jr said the quota is not a subsidy, but dairy farmers, and not processors, should be compensated over recent trade deals.

In 2017, a last-minute dispute over how Canada would allocate cheese import quotas sent the country back into negotiations with the European Union over the Comprehensive Economic and Trade Agreement (CETA).

European cheesemakers were unhappy with a plan to give Canadian processors 60 percent of the new quota. In a compromise, they received 50 percent.

In the first full year with the new quotas in force, Canadian imports have been sluggish.

Saputo Jr, who said his company has used all of its CETA quota, noted that 60 percent of the quota was set aside for small companies, something that was eliminated for CPTPP.

The way the CETA quota was fragmented between many companies has made it difficult to import profitably, Reuters reported in September.

In the notice, federal officials promised a "broad-based stakeholder engagement exercise" in the new year to review all of Canada's import quotas, as new trade deals expand their use.

(Reporting by Allison Martell; Editing by Tom Brown and James Dalgleish)

By Allison Martell