November 6, 2017

NAFTA Talks Get Feisty

 |  By: Mike Opperman

With each round the push and pull of negotiations on a revised North American Free Trade Agreement (NAFTA) becomes more contentious. Like action in a prize fight, the first three rounds were made up mostly of posturing and positioning. But in the fourth round of negotiations, held in Washington, D.C., in October, U.S. negotiators started throwing haymakers. Here’s where negotiations stand heading into round five to be held in Mexico City at the beginning of November.

  • The U.S. calls for change in Canada. The biggest shot in the NAFTA negotiations came when the U.S. called for an elimination of Class 7 pricing in Canada. This pricing system is what dropped the value of milk protein concentrate products in Canada to help the competitive nature of Canadian processors. This ramped up the production of butter and other goods in Canada, creating more milk powder that Canada dumped at a minimum price on the global market. The U.S. and other exporting countries cried foul.
  • Canada says ‘no’. Canada saw the demands from the U.S. as a direct threat to its supply management program, a system that for decades has effectively regulated production. Canadian officials called the U.S. offer “outrageous” and vowed to protect their markets at all cost.
  • Mexico is intently watching. In NAFTA negotiations Mexico has bigger issues with tariffs in the auto industry and, for dairy at least, is intent on the U.S. and Canada fighting their battle. Negotiators have reminded the two combatants that any agreement has to be fair to all three countries, not just those two.

A sidelined but critical issue is how committed the U.S. is to actually renegotiating NAFTA. Many experts have expressed the hard line being drawn by the U.S. in dairy and other markets is to create a poison pill no other country will accept, thus giving the U.S. reason to exit the agreement. U.S. dairy interests hope this doesn’t happen, as any disruption in exports to two of the top three export partners would have significant ramifications on milk price.