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USMCA signed, not sealed or delivered; U.S.-China trade war hits pause button

Progressive Dairyman Editor Dave Natzke Published on 03 December 2018

U.S. President Donald Trump joined Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto in signing the U.S.-Mexico-Canada Agreement (USMCA) during the G20 Summit Meeting in Buenos Aires, Argentina, Nov. 30. And, President Trump and Chinese President Xi Jinping declared a 90-day truce in an escalating trade war between the U.S. and China, with the U.S. putting on hold an increase in import tariffs scheduled for Jan. 1, 2019.

USMCA: Steps remain

Negotiators of the three countries had agreed in principle to USMCA – which replaces a decades-old North American Free Trade Agreement (NAFTA) – on Sept. 30. Approval is needed from Congress and legislative bodies in Mexico and Canada, a process that will likely push into 2019.

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How the USMCA signing is viewed primarily depends on which side of the U.S.-Canadian border you dairy. Canadian dairy farmers called the signing a “dark day” in their history and another indication Canada’s government leaders had failed the dairy sector. Leaders of U.S. dairy farmer and processing organizations had praise for the agreement, saying it must be quickly followed up by ratification and implementation before it can be called a success.

All U.S. leaders agreed on the main principles of what the USMCA does for dairy – and what it doesn’t do:

  • It preserves duty-free market access to Mexico, the No. 1 foreign market for U.S. dairy products. Mexico accounted for $1.2 billion in U.S. dairy product sales last year, about 25 percent of total U.S. dairy exports. With additional geographic indications provisions, the agreement also protects market access for certain cheese names.
  • It provides incremental increases in U.S. dairy product access to the Canadian market and calls for elimination of the Class 7 pricing system in Canada.
  • It doesn’t lift U.S. Section 232 tariffs on steel and aluminum imports, which in turn leaves retaliatory tariffs imposed by Mexico and Canada on many agricultural products, including dairy, as barriers to exports.

NMPF, USDEC say retaliatory tariffs must go

Leaders of the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) commended the signing, but said the ultimate impact of the agreement will depend on how it’s implemented, especially as it pertains to Canada, and the remaining retaliatory tariffs.

“This year has been a challenging one for dairy producers, who are dealing with continuing low prices and the damaging effects of retaliatory tariffs that have already cost them about $1.5 billion,” said Jim Mulhern, NMPF president and chief executive officer. [We] encourage the administration to take a fresh look at other tariffs that are hampering North American trade, including the steel and aluminum tariffs still imposed on Mexico, and to continue making progress in striking new free trade agreements and resolving ongoing trade conflicts.”

“The signing of the USMCA gives America’s dairy industry greater confidence as we head into 2019,” said Tom Vilsack, USDEC president and chief executive officer. “We trust that the administration will aggressively enforce both the letter and the spirit of the agreed upon text.”

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Although the U.S. dairy industry had sought deeper market expansion and stronger disciplines from Canada on dairy, Mulhern and Vilsack praised U.S. negotiators for their ardent efforts to address reforms in Canada’s practices.

“It is imperative that the United States ensures that Canada implements its commitments in a manner consistent with the hard-fought transparency and market-reforming disciplines secured in this agreement,” Vilsack said.

The dairy organization leaders also urged the governments of the three nations to take the next step toward better trade relations by removing currently imposed tariffs on agricultural exports – as well as steel and aluminum – that have been sticking points in relations between the countries.

Dairy Farmers of Canada: A dark day

The head of the Dairy Farmers of Canada (DFC) said the agreement conceded oversight of the country’s dairy system to the U.S.

“The oversight clause undermines Canadian sovereignty and its ability to develop and manage Canadian policies without U.S. intervention. This should not be understated and will have a lasting effect on our domestic dairy sector,” said Pierre Lampron, the organization’s president.

The agreement’s provisions to phase in additional U.S. access to Canada’s dairy market, as well as changes in dairy class policies impacting both imports and exports, will have a dramatic impact on investments by the whole sector, he warned.

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“We fail to see how this deal can be good for dairy farmers, their families and the 221,000 people employed in the dairy industry,” said Lampron. “Our government is not only contributing to the dismantling of our dairy model in Canada, it is giving up our sovereign right to make our own policies and that should be of concern to all Canadians.”

On top of the recent European Union-Canada Comprehensive Economic and Trade Agreement (CETA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), USMCA means total dairy imports will make up close to 20 percent of the Canadian dairy market, according to DFC.

“At the farm gate alone, this represents an annual loss of $1.3 billion for farmers,” Lampron said.

DFC previously released calculations indicating dairy imports allowed under the three trade agreements have the potential to curtail a majority of anticipated growth in Canadian butterfat quota, with USMCA having the biggest impact.

IDFA: Tariffs, ratification questions remain

Michael Dykes, president and chief executive officer of the U.S.-based International Dairy Foods Association (IDFA), said the agreement is a “hollow victory” until the retaliatory tariffs are lifted.

“Mexico’s retaliatory tariffs of 25 percent on American cheeses continue to have a negative impact on dairy exports, and U.S. dairy’s access to the Mexican market remains at serious risk,” Dykes said. “We’re increasingly concerned that the benefits won’t be realized as long as the tariffs on steel and aluminum imports remain in place.

Dykes is also concerned political changes in the U.S. may hamper ratification by Congress.

“We recognize that, given the political changes in the recent midterm elections and the uncertainty over the resolution of the steel and aluminum tariffs, it is very difficult to predict the timing of the final approval of the USMCA by the United States and implementation of the agreement by both Mexico and Canada. We will advocate for expeditious congressional approval so the agreed-to changes can be implemented as soon as possible,” Dykes said.

Edge: Certainty is needed

Leaders of Edge, a Midwest dairy marketing cooperative based in Green Bay, Wisconsin, also called the signing a critical step forward, but stressed the importance of clearing up remaining uncertainties in the deal and resolving the tariff issue that continues to hurt U.S. dairy farmers.

“Given the importance of keeping a NAFTA-style agreement, we are thankful for the hard-fought progress the three countries have made,” said the co-op’s president, Brody Stapel, who farms with his family in Cedar Grove, Wisconsin. “Mexico is the most important trading partner for our dairy community and changes in the deal with Canada should provide benefits there also. At minimum, this gives hope to our dairy farmers who have been fighting to make it through a very difficult time. You can’t overstate the value of having certainty at times like this.

Edge members were among those who lost markets for ultrafiltered milk when Canada implemented Class 7 policy in 2017, and Stapel said it’s still unclear what system Canada will use to replace that policy under USMCA. He urged fellow producers to watch for details and implementation closely.

“This is not done yet,” Stapel said. “It will be important for dairy farmers to stay engaged in this process. Make sure your representatives in Congress know that the deal needs to provide the best possible outcome for the dairy community.”

Removal of the retaliatory tariffs are also critical.

“We can’t stress enough to the administration that the dairy community is suffering because of this situation,” he said. “Without an end to the tariffs, the new agreement will be less than a complete win for us.”

A win, with a caveat

Brian Kuehl, executive director of Farmers for Free Trade, said signing the agreement was “a win” for U.S. farmers, but that it contained a big caveat.

“While USMCA offers exciting opportunities for market access into America’s largest and closest ag export markets, any gains will continue to be offset by the losses farmers are experiencing from retaliatory tariffs as long as they are in place,” Kuehl said. “[We] believe that negotiating an end to the tariffs on Canada and Mexico is just as important for the bottom lines of farmers and their families. When it comes to a decision between the original NAFTA or USMCA along with tariffs on ag exports to Canada and Mexico, our farmers will choose the original NAFTA every time.”

Through September, trade retaliation imposed by Mexico and Canada faced over $1.1 billion in new tariffs, which caused a 21 percent drop in exports, he said.

Farmers for Free Trade is a bipartisan campaign made up of U.S. farmers, ranchers and agricultural businesses that support free trade. It is co-chaired by former U.S. Sens. Max Baucus and Richard Lugar.

FarmFirst: Verification needed

The trilateral agreement reflects the long-standing trade relationships between the U.S., Mexico and Canada, according to a statement released by FarmFirst Dairy Cooperative, with dairy farmer members in Illinois, Indiana, Iowa, Michigan, Minnesota, South Dakota and Wisconsin. Approval by Congress and implementation remain critical next steps.

Like other dairy groups, FarmFirst called attention to protecting export markets in Mexico and implementing policy reforms in Canada. It said U.S. dairy companies provide about 75 percent of all the dairy products imported into Mexico. And, the agreement should provide greater market expansion for U.S. dairy into Canada, while addressing pricing structures to ensure fair trade practices.

“It will be imperative that the U.S. verifies that Canada maintains its commitments that is consistent to the agreement’s disciplines,” FarmFirst said.

China pledges to buy more U.S ag products

The truce in the U.S.-China tariff wars means the U.S. will retain existing tariff rates of 10 percent on about $200 billion worth of Chinese imports implemented earlier this year. Those tariffs, and resulting retaliatory tariffs implemented by China, are blamed for declining U.S. agricultural exports to China.

The tariffs increases, to 25 percent, will be implemented after 90 days if there is no progress in negotiating China’s trade policies and practices, which the office of the United States Trade Representative’s (USTR) declared are “unreasonable and discriminatory and burden or restrict U.S. commerce.”

China also agreed to boost its purchases of agricultural goods to reduce its trade imbalance with the U.S.

In a statement released by Tariffs Hurt the Heartland, a nationwide anti-tariff campaign that includes more than 150 trade associations and ag commodity groups, spokesman and former U.S. Rep. Charles Boustany called the action "an encouraging first step.” He said the hold on tariff increases must be followed up by rolling back the tariffs currently in place.

Angela Hofmann, executive director of Farmers for Free Trade, issues similar sentiments while addressing the Illinois Farm Bureau Convention.

“Any signal, even if temporary, that this trade war may de-escalate is welcome news for farmers,” she said. “While farmers are cautiously optimistic about this development, they are also keenly aware that they are still subject to the existing painful retaliatory tariffs and lost markets that have hurt their recently harvested crops and income.”  end mark

Dave Natzke
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