Jacinda Ardern told Canada's Justin Trudeau 'to his face' that New Zealand would escalate trade dispute

Prime Minister Jacinda Ardern told her Canadian counterpart "to his face" that New Zealand would escalate a trade dispute over dairy tariff rate quotas.

"I think it would be unusual that given the amount of contact we have for me not to raise the issue. Our relationship with Canada means I can be very forthright," Ardern said on Monday.

She told Canadian Prime Minister Justin Trudeau that "we were at an impasse" and she didn't "see any reason why we should have officials continue a back and forth". She said she didn't want to "waste time". 

"If we can speak frankly as leaders and know we are between ourselves not going to be able to resolve it, it was time to escalate. That's what we've done."

Ardern said she told Trudeau that "to his face" and believed because of the pair's relationship "there was no issue with that".

The Prime Minister couldn't say off the top of her head when she gave that message to the Canadian leader, but noted the "escalation point" was May 12, when New Zealand initiated the dispute.

Aotearoa's issue is over how Canada is administering dairy tariff rate quotas (TRQs) under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). TRQs set out how much of a product can be imported into a country without tariffs or at a lower tariff rate.

After New Zealand launched the dispute, it held formal consultations with Canada. However, Trade Minister Damien O'Connor said on Monday they failed to resolve the matter.

New Zealand's now stepped up our response again, request a panel to be established to hear and decide the dispute. New Zealand and Canada will select three individuals to sit on the panel, while other CPTPP countries will have 10 days to join the dispute as third parties.

"This is ultimately about ensuring that our exporters can access the benefits that were agreed under CPTPP," said O'Connor.

"These were hard-won negotiated outcomes, and it is important that our exporters have confidence and certainty in their ability to enjoy them.

"New Zealand continues to value its strong friendship with Canada, one of our warmest and closest relationships in the world. This is a discrete trade issue, and the dispute settlement mechanisms in CPTPP provide us with a neutral forum to resolve it."

The issue at play is that many of Canada's TRQs have been unfilled, which represents a loss by New Zealand dairy exports estimated at $68 million over the first two years.

O'Connor said the way Canada is implementing TRQs is locking Kiwi exporters out of the Canadian market.

In response to the move by the New Zealand Government in May, a spokesperson for Canadian Trade Minister Mary Ng said her country was a "fair trading partner".

"Our government will always stand up for Canada's dairy industry, farmers and our supply management system," she's reported by the Financial Post as saying.

"We have consistently said we will work with industry and with New Zealand on this issue, and we will continue to do so."

Ardern and Trudeau have a warm working relationship. In September, Ardern flew from the Queen's funeral in London to New York for the United Nations General Assembly on the Canadian Prime Minister's plane. That apparently came after she sent Trudeau "a quick text message".