Executive Summary of Trade Deal’s Impact on Dairy

Mark O'Keefe

Trade policy experts at USDEC and NMPF synthesized the most significant provisions of USMCA for the U.S. dairy industry.

How does the new trade deal affect U.S. Dairy_

President Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto signed the new U.S.-Mexico-Canada Agreement on Friday. If approved by Congress, USMCA will replace the 24-year-old North American Free Trade Agreement (NAFTA).

In a Friday news release, the U.S. Dairy Export Council  and the National Milk Producers Federation commended the Trump Administration for signing USMCA. The release praised negotiators for their ardent efforts to address Canada’s pervasive trade-distorting practices affecting dairy.

But as is the case with most free-trade agreements, the devil will be in the details and implementation.

After months of negotiation, USMCA was agreed to in principle by the three countries on September 30. Since then, USDEC and NMPF scrutinized the official text for implications for U.S. dairy. The document signed Friday was also reviewed.

For quotes and analysis from USDEC President and CEO Tom Vilsack and NMPF President and CEO Jim Mulhern, read the Friday news release.

What follows is a bulleted executive summary identifying the most significant provisions of USMCA for the U.S. dairy industry.

EXECUTIVE SUMMARY
Key USMCA Provisions for U.S. Dairy

  • Maintains dairy trading structure with Mexico. While the name of the free-trade agreement changes, the overall U.S.-Mexico trading structure of NAFTA remains. Thanks to NAFTA, Mexico is the largest export destination for U.S. dairy products, accounting for $1.2 billion in sales last year, with U.S. dairy exporters commanding a dominant market share.
  • Gives the U.S. more dairy market access to Canada. Volumes are slightly more than were agreed to under the now-defunct Trans-Pacific Partnership (TPP), but with USMCA, these volumes are solely for the United States rather than split between all TPP participants.
  • Eliminates Canada’s Class 7 dairy pricing system. This happens six months after implementation and establishes new pricing structures for skim milk powder (SMP), milk protein concentrate (MPC), and infant formula. It also establishes annual export limits on Canadian exports of SMP, MPC, and infant formula, above which export surcharges are levied. The goal is to constrain Canada’s ability to dump unlimited quantities of dairy products onto global markets.
  • Establishes new ways to oppose GIs for common cheese names. The deal includes new disciplines to strengthen the ability of common-name users to oppose applications of geographical indications that would monopolize the use of generic terms. USMCA also establishes a nonexhaustive list of commonly used cheese names that may not be restricted by Mexico moving forward.
  • Provides sanitary and phytosanitary improvements. USMCA establishes rules that will provide for more transparency and more scientific grounding of countries’ regulations in ways that should help prevent nontariff barriers to trade.

Looking ahead, USDEC and NMPF have identified broader, ongoing trade policy challenges affecting U.S. dairy.

EXECUTIVE SUMMARY
Broader Trade Policy Issues for U.S. Dairy
 

  • Mexican tariffs on cheese still in place. A lot of hard work went into finalizing the USMCA agreement, but important work still remains. The U.S. dairy industry will not see the benefits of USMCA until the Trump administration rolls back metal tariffs on Mexico and Mexico ends its retaliatory tariffs on U.S. cheese exports.
  • Tariffs are financially hurting farmers. Retaliatory tariffs by Mexico and China are hurting dairy farmers financially struggling with low milk prices. An Informa Agribusiness Consulting study estimated that the tariffs would lower U.S. dairy farm income by $1.5 billion for the full year 2018 with 2019 losses forecast to exceed more than $3 billion. The Center for North American Studies at Texas A&M University estimated an annual loss of $1.2 billion for 2018.
  • China and other countries need more attention. We hope the agreement on USMCA frees up the Trump administration to devote more time to repairing U.S. trade relations with China, which has levied retaliatory tariffs on U.S. dairy exports valued at $577 million last year, and to pursue bilateral negotiations in earnest with high-potential markets like Japan and, post-Brexit, the U.K.

Assuming final approval by Congress, the ultimate impact of the USMCA agreement will depend on how it’s implemented by the three countries.

The U.S. dairy industry will engage with both parties in Congress to seek their support for the agreement’s passage while at the same time seeking assurances that Canada will comply with their commitments in a fair and transparent manner.

Whatever happens, USDEC and NMPF will represent the trade interests of the U.S. dairy industry with energetic vigilance.

For U.S. government fact sheets and other information on the agreement, including its complete text, visit the website of The Office of the U.S. Trade Representative (USTR).

Mark O’Keefe is vice president of editorial services at the U.S. Dairy Export Council.

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