A dispute between the state of Quebec over the colour of margarine has now become a bone of contention between state governments and could soon escalate further. Joel Ceausu reports.

A simmering feud in Canada over the colour of margarine shows yet again how slowly both judicial and regulatory wheels can turn. Whether margarine is yellow or white may not seem like the most pressing of trade issues, but it has been the subject of a dispute between Quebec and the food company Unilever for almost ten years, and is now escalating into a clash between Quebec and several other Canadian states.

The row dates back to 1997 when Unilever Canada challenged Quebec's Regulation Respecting Dairy Product Substitutes law. The regulation stipulates that margarine "must have a colour measuring not more than one and six-tenths degrees or less than 10 and five-tenths degrees of yellow or yellow and red combined on the Lovibond colorimeter scale". In other words, all margarine sold within Quebec should be sufficiently differentiated in colour from butter.

But Unilever, which markets margarine under several brands including Blue Bonnet, Becel, and I Can't Believe It's Not Butter, said the law violated several agreements, including the North American Free Trade Agreement and the 1995 Agreement on Internal Trade (AIT) set up by Canada's provincial and federal governments.

Unilever's contention appeared, even back in 1997, to have some legitimacy. While a lower court supported the seizures of the yellow margarine by Quebec government inspectors, it agreed that the law violated inter-provincial trade rules. And it is under the AIT accord that the row is developing into an inter-state feud.

As far back as 2003, the law was challenged by the government of Alberta - at the behest of the Vegetable Oil Industry of Canada (VOIC) - under the AIT, and the VOIC is now urging other Canadian states to take action.

The VOIC, which represents some 70,000 canola growers and the nation's largest vegetable oil producers like Archer Daniels Midland Company and Unilever, is resolute in its determination to get rid of the law, in spite of a Supreme Court ruling in 2005 which appeared to support the Quebec government's original position. "The Supreme Court ruled what we all knew for 140 years," Sean McPhee, president of the VOIC, explains. "Quebec has the right to regulate this way, but they signed an agreement that they wouldn't."

According to the VOIC, Alberta-produced margarine's share of the Quebec market is 10% below the national average, and it costs the industry about C$20m (US$18m) a year to service this market with its special requirements. "Real costs run higher," says McPhee, "when you add expenses of keeping second production runs, distribution and processing. The largest producers can pay up to C$100,000 a month more, while smaller producers don't even bother selling there because it is cost-prohibitive."

Last June, the AIT panel sided with the margarine industry, which accounts for about C$300m in dairy substitute sales. Much to the delight of Canadian oilseed growers, processors and producers, the AIT ruling called Quebec's margarine colour regulation an unjustifiable obstacle to internal trade that "impaired and caused injury to margarine producers and their upstream suppliers."

Quebec's Federation of Milk Producers (FPLQ), which represents 8,000 Quebec dairy farms, believes repealing the law could threaten 3,000 jobs in the dairy industry and remains strongly opposed to any move towards dismantling the legislation. Marcel Groleau, president of the FPLQ, maintains that the AIT ruling does not take precedence over the existing legislation. The Supreme Court ruling "specifies that provincial accords and international treaties have no effect on the rule's validity…The AIT has no force of law in this country," Groleau said.

That's precisely the point, McPhee counters. "It's a political agreement, and each signatory's constitutional entitlements must be consistent with that agreement. Notwithstanding the province's right to do something, it must not do it." But Groleau insists the AIT does not trump Quebec's right to defend its producers' interests against those of "Canada's western provinces and multinational corporations".

And that appears to be the current stand-off. The AIT panel ruled in June last year that Quebec should open its market to yellow margarine within 60 days, a deadline that came and went on 1 September.

The Quebec government's view on its current position is brief and none too helpful. "We are studying the issue and the judgement," Claude Grégoire of Quebec's Ministry for Agriculture, Fisheries and Food told just-food. "We are still in consultation with our partners in the industry and there will definitely be a decision by the government, but we are not working to any timeline."

Given that the original deadline appeared to have been passed eight months ago, the lack of any kind of timescale is bemusing to say the least. But it seems things may be coming to a head relatively soon. There is an AIT provision to allow complainant provinces - Alberta, Manitoba and Saskatchewan - to take retaliatory action beginning in June 2006 and the VOIC has already urged them to do so.

On 1 April, those governments were formally asked by the VOIC to challenge the law under the AIT which may involve imposing similar sanctions against Quebec butter. "Our options are wide and not yet decided," says McPhee. "But the point is to remove this ridiculous law. There are several significant trade issues in Canada, but this one is very symbolic and it is important that we resolve it."