WASHINGTON — The U.S. dairy industry pointed to “incremental progress” achieved by U.S. negotiators in the recently announced United States-Mexico-Canada Agreement, which, if approved by the legislatures of the three countries, will replace the North American Free Trade Agreement. Still, the agreement as it pertains to dairy fell short of the open and duty-free trade sought by U.S. milk producers, processors and dairy product exporters.
Most important, the U.S.M.C.A. retained the trilateral structure of NAFTA.
Mexico by a wide margin is the largest importer of U.S. dairy products with Canada a distant second, according to the U.S. Dairy Export Council (U.S.D.E.C.) In 2017, Mexico imported $1,312 million of U.S. dairy products, up 8% from 2016, and Canada imported $636 million of U.S. dairy products, up 1% from 2016. Mexico and Canada combined purchased 36% of all U.S. dairy exports, by value, in 2017.
The U.S.-Mexico portion of the new agreement ensures Mexico will remain the largest importer of U.S. dairy products, although U.S. cheese exports to Mexico have fallen victim to a 25% tariff imposed by Mexico in retaliation for the Trump administration’s imposition of increased tariffs on steel and aluminum imports. The tariff standoffs between Mexico and the United States, and between the United States and Canada, were not resolved during the U.S.M.C.A. negotiations.
Shawna Morris, vice-president of trade policy at the U.S.D.E.C., said the dairy industry was pleased the new trade agreement would preserve commitments of zero tariffs between the United States and Mexico on dairy trade.
“But we also need to get back to genuinely duty-free trade conditions in practice as well,” Ms. Morris said. “Mexico’s retaliatory tariffs on U.S. cheese exports remain a deep concern for our exporters. We are urging the United States and Mexico to swiftly resolve the metal and retaliatory tariffs to restore fully open trade in dairy products with our No. 1 export market.”
Negotiations between Canada and the United States on dairy were much more contentious, and progress fell short of the U.S. dairy industry’s goal of duty-free trade in dairy products between the two countries.
James Mulhern, president and chief executive officer of the National Milk Producers Federation, said while Canada will remain a largely self-contained, protected milk market, “this agreement, when implemented, should give us additional marketing opportunities that will allow us to provide high-quality American dairy products to Canada, which means we’ve made incremental progress.”
The Office of the U.S. Trade Representative said under U.S.M.C.A., Canada agreed to provide new tariff rate quotas for U.S. dairy products, which, in most cases, after reaching designated levels by year six of the agreement, will be raised 1% each year for 13 years. The result was the United States may have access to about 3.6% of the Canadian dairy market.
The U.S.T.R. said the United States will provide reciprocal access on a ton-for-ton basis for imports of Canadian dairy products through first-come, first-served tariff rate quotas.
A more significant achievement was winning Canada’s agreement to eliminate Class 6 and Class 7 milk prices no later than six months after the U.S.M.C.A. is implemented.
The U.S. dairy industry has asserted Canada’s Class 7 milk pricing policy, implemented less than two years ago, artificially lowers milk ingredient prices, encourages the substitution of domestic Canadian dairy ingredients for imported ingredients and promotes the “dumping” of Canadian dairy proteins onto world markets at below-market prices.
Canada agreed that on eliminating the milk price Class 7 it would ensure the Canadian price for skim milk solids used to produce nonfat dry milk, milk protein concentrates and infant formula will be set no lower than a level based on the U.S. price for nonfat dry milk. Canada also committed to adopt measures designed to limit the impact of any surplus skim milk production on external markets. The measures include resumption of its program to use skim milk domestically as animal feed and a new commitment to cap its exports of skim milk powder, milk protein concentrates and infant formula.
For skim milk powder and milk protein concentrates, the aggregate export cap will be 55,000 tonnes in the first year after the agreement enters into force, falling to 35,000 tonnes in the second year. Exports that exceed the threshold will face an export surcharge of C$0.54 per kg. For infant formula, the export cap will be 13,333 tonnes in the first year, increasing to 40,000 tonnes in the second and subsequent years. Exports that exceed the threshold will face a surcharge of C$4.25 per kg. Both caps will be increased by 1.2 % a year.
“Maintaining dairy market access in Mexico and improving market access into Canada were the International Dairy Foods Association’s top priorities during the talks to modernize NAFTA,” said Michael Sykes, president and c.e.o. of the International Dairy Foods Association. “The new agreement will preserve our vital partnership with both countries and allow the U.S. dairy industry to seek more export opportunities.”