IDFA has kept up the drumbeat on trade issues important to dairy, stressing that without steel and aluminum tariffs being lifted on Mexico, the newly signed U.S.-Mexico-Canada Agreement (USMCA) remains a hollow victory for U.S. dairy. Michael Dykes, D.V.M., IDFA president and CEO, last month testified in front of the U.S. International Trade Commission (ITC) to stress the issue and discuss USMCA’s economic impact on U.S. dairy. IDFA this week submitted additional written comments to the ITC to underscore U.S. dairy’s trade priorities.
Mexico
Mexico is the largest international market for the U.S. dairy industry with Mexico importing more than $1.3 billion of U.S. dairy products in 2017.
USMCA preserves duty-free market access for U.S. dairy products to Mexico, IDFA said, adding that the agreement also includes some additional market access protections for certain cheese names via new geographic indications provisions.
IDFA emphasized, however, that the economic benefits of USMCA cannot be fully realized by U.S. cheesemakers until Mexico’s 25 percent tariff on cheese, a retaliation for U.S. steel and aluminum tariffs, and others are lifted.
“Sales have declined 10 percent for cheese in July, August and September due to the tariffs. This downward trend is expected to continue into the new year,” IDFA said. “Until the Section 232 tariffs are lifted, U.S. dairy’s access to the Mexican market is at significant risk.”
Canada
IDFA commended the U.S. Trade Representative for negotiating a USMCA that eliminates Canada’s Class 6 and 7 ingredients pricing strategy, as well as the tariff rate quotas that are duty free and country specific for the majority of U.S. dairy products exported to Canada. However, IDFA said it has remaining concerns.
In the current USMCA text, Canada’s processors can create their own internal “make allowance” that would drive Canadian dairy product prices lower and prevent competition with U.S. dairy goods.
Canada’s current dairy ingredients pricing strategy includes a Class 6 program that effectively blocks U.S. ingredients from entering the Canadian market and a Class 7 program that allows Canada to export surplus skim milk powder at prices below the cost of production. Although the new agreement will eliminate the Class 6 and 7 programs, Canadian processors will still be able to use Canada’s “make allowance” formula, or processor cost, that is nearly double the U.S. version.
“Thus, the higher Canadian make allowance will directly lower the Canadian nonfat solids price and will likely provide Canadian dairy protein processors a competitive advantage relative to the U.S.,” IDFA said.
IDFA also stressed its concerns that Canada may not fulfill the new quotas in USMCA. Canada has not filled quotas in the past, even when U.S. dairy products are priced more competitively, IDFA said.
“Several WTO quotas are routinely left unfilled for milk protein substances and products of natural milk constituents,” IDFA added.
For these reasons, actual market access for the U.S. dairy industry to the Canadian market could be much lower than what was negotiated, IDFA stressed.
For more information, contact Beth Hughes, IDFA senior director of international affairs, at bhughes@idfa.org.