September 17, 2018

Trump Continues Push to Remove Class 7

 |  By: Mike Opperman

The U.S. and Canada continue to negotiate over dairy policy with one side demanding a concession the other has been unwilling to give up.

The debate continues to center on Canada’s Class 7 pricing system. The program that creates an incentive for Canadian cheese makers to purchase ultrafiltered milk from Canadian processors while effectively shutting out U.S. suppliers from the market. Class 7 has been hotly debated ever since it was set in place in February 2017.

According to Politico, Gregg Doud, the U.S. Trade Representative’s (USTR) chief agricultural negotiator, says the challenge is how “disparate” the U.S. and Canadian dairy markets are, but trade officials have spent an “enormous” amount of time working on the issue in good faith, he says.

The U.S. also wants greater access to the Canadian market beyond just the Class 7 issue. Currently, Canada only allows a small amount of U.S. dairy products to enter the country without tariff. For some products, going above that threshold means a tariff as high as 314%.

Two former U.S. trade negotiators told Politico they expect Canada to open a small percentage of its dairy market by expanding quotas on tariff-free products, similar to what Canada has offered the European Union and South Pacific nations in recent trade deals. That would open up an additional 3.5% of its overall market and 5% of its cheese market. 

“This issue is incredibly politically sensitive in Canada,” says Darci Vetter, USTR chief agriculture negotiator during the Obama administration. She told Politico that the dairy industry’s political significance in Canada outweighs its economic importance.

The issue is important politically in the U.S as well. November elections are just around the corner, and President Trump wants to bolster support in dairy country.

According to Jim Wiesemeyer, Pro Farmer political analyst, if a resolution between the U.S. and Canada cannot be made, Mexico has said that it wants to reopen its recent trade deal with the U.S. Ildefonso Guajardo, Mexico Economy Secretary, indicated some of the provisions agreed to by Mexico were based on the expectation Canada would be part of the final deal, he says.