Trade Minister François-Philippe Champagne has disappointed Canada's dairy industry with a revised plan for how nearly 18,000 tonnes of European cheeses will be imported once the Canada-EU trade deal takes effect in September.

A much-anticipated announcement came Tuesday on how Canada will allocate tariff rate quota (TRQ) for 16,000 tonnes of fine cheese and 1,700 tonnes of industrial cheese.

Those licensed to import this new tariff-free European cheese stand to reap the profits.

But Canada's plan to give 60 per cent of this quota to its domestic dairy industry, to compensate for market share it's about to lose, didn't go over well in Europe.

Negotiators were called back to Brussels and relented, hammering out the compromise announced Tuesday: half the new quota will go to the domestic industry's cheese makers while the other half is allocated to distributors and end retailers. Each will get about 8,000 tonnes of new quota.

Small and medium-sized businesses will receive the majority of the quota in each half, helping artisanal cheese makers and independent vendors. The Liberal government wants to help smaller enterprises realize the economic benefits of future free trade agreements.

Trudeau on new Canada EU cheese dispute 0:19

In negotiations with the EU, Canada agreed to allocate just under one-third of the total imports to new entrants during the five-year phase-in period. (A new entrant keeps its status for three years.)

Canadian cheese makers were disappointed and "very concerned" to see the government relent to European demands, calling it a "missed opportunity" to help the dairy sector adjust to potential competitive losses under the new trade deal.

"How do you justify attributing licences to people that won't be impacted?" said Jacques Lefebvre, the CEO of the Dairy Processors Association of Canada. For retailers, he said, "It's Christmas in July."

Imports poised to double

Under Canada's supply management system for dairy products, imports are severely limited in order to manage domestic market prices. Few European cheeses come into Canada duty-free, with enormous tariffs applied to all others to discourage high volumes of imports.

The Comprehensive Economic and Trade Agreement (CETA) changes that.

Canada will nearly double the amount of EU cheese it imports duty-free. It's the first time it has awarded new cheese quota since the 1970s.

(Global Affairs Canada)

Cheese-loving consumers can't know yet exactly what this means for them.

The businesses that apply for and receive the tariff rate quota will pick which kinds of cheese from what countries to sell, and when.

Importers may select unique cheeses not currently available in Canada. They could also bring in familiar cheeses at a lower price, to compete with and potentially displace domestic cheese.

Quebec and Ontario asked the federal government to give the quota to the domestic industry to help it adjust to the new trade deal.

During public consultations, groups representing distributors and retailers argued that consumers would benefit most if all the quota went to those already in the retail supply chain. They said Tuesday they're satisfied with the balance Champagne struck.

"We see it as a major step in the right direction," said David Wilkes, representing the Retail Council of Canada. "We're very pleased to see the direct allocation to the retail community."

Gary Sands from the Canadian Federation of Independent Grocers said it recognized the challenges small businesses have with suppliers at a time when larger, consolidated chains dominate the retail landscape.

"To see us get a fair shake at the allocations for the new imports coming in is really good," he said. "The status quo, from our standpoint, has not been working … the government was receptive to that."

Dispute delayed CETA's implementation

CBC News reported in June that when Canada briefed the EU on its plans last spring, the Europeans weren't impressed. They wanted retailers or distributors to decide what to offer consumers.

Europeans were skeptical that all the tonnes they bargained for would really enter Canada if the majority of the importers were their Canadian competitors, bringing in cheeses that could compete with their own.

What one source described as a "row" eventually delayed the planned implementation of CETA, originally expected on July 1.

International Trade Minister François-Philippe Champagne, right, seen here with Prime Minister Justin Trudeau at Fête nationale celebrations in Trois-Rivières, Que., earlier this summer, is responsible for allocating Canada's tariff rate quota. The dairy industry had been waiting for him to act on cheese for months. (Jacques Boissinot/Canadian Press)

Imports constitute about five per cent of Canada's current cheese market. The new EU cheese will bump that to nine per cent (7.5 per cent will be from Europe.)

The federal government believes that because consumer demand is rising by about one per cent per year, the Canadian industry can adjust, given the five-year phase-in.

Agriculture Minister Lawrence MacAulay revealed more details Tuesday on two new federal programs to help the dairy sector compete internationally.

Both apply retroactively, dating back to their original announcement last November. They offer:

Up to $250,000 per licensed dairy farm for upgrades to barn technology and equipment to improve productivity.

Up to $10 million per dairy processor for capital investments, or up to $250,000 to access technical, managerial or business expertise.

Importers can apply now for fall

Prime Minister Justin Trudeau and European Commission President Jean-Claude Juncker announced at last month's G20 meeting in Hamburg that roughly 98 per cent of CETA would be provisionally applied Sept. 21, including this new market access for cheese.

The remainder of the agreement is on hold until votes are held in member state legislatures across Europe, because of jurisdictional disputes over some specific parts of the agreement. Five of the 28 current member states have fully ratified to date.

Another issue holding up the deal, a dispute over changes coming to Canada's pharmaceutical patent process, also appeared to be moving along last month, when draft regulations posted online kicked off a public consultation process for changes the EU argued hadn't been sufficiently transparent on Canada's side.

Tuesday's announcement starts an application process for would-be importers. The first duty-free cheese could arrive as early as October.