Canadian sign post.
October 19, 2017

Down the Rabbit Hole called NAFTA

 |  By: Dairy Talk

The National Milk Producers Federation continues to take a hard line on the North American Free Trade Agreement (NAFTA) negotiations, which to date, have come to nothing.

In a press release issued Oct. 19, after it was announced NAFTA talks among U.S., Canadian and Mexican trade negotiators have stalled, NMPF stated:

“The problems created by Canada’s dairy system must be resolved as part of the current negotiations. There can be no acceptable NAFTA outcome unless these issues are resolved.”

NMPF defines “these issues” as greater access to Canadian consumer markets, which are now essentially blocked by tariffs of 250 to 300 percent on U.S. dairy products, and the creation of a new Class 7 in the Canadian marketing system. Class 7 subsidizes and dumps milk protein isolates on the world market and essentially blocks such U.S. sales to Canada.

The frustration with Canada is understandable, given that the original NAFTA agreement exempted dairy products. The creation of the new Class 7 earlier this year just added jet fuel to the fire, when more than 100 dairy farms in New York, Wisconsin and Minnesota lost access to milk protein isolate sales. (Note: Milk protein isolates were not in existence when NAFTA was originally signed, and their sales could thus slip into Canada under the radar.)

But NMPF and the U.S. Dairy Export Council (USDEC) have now essentially declared war on the Canadian dairy industry. NMPF and USDEC have publicly stated they want nothing less than the dismantlement of Canada’s dairy supply management program, which has been the bedrock of its dairy system for decades.

If the U.S. and Canada were the only two parties involved, making such a threat and losing wouldn’t be all that big of a deal. Failing to gain access, the U.S. would likely get Class 7 thrown out by the World Trade Organization (though admittedly that could take several years).

The problem is that NAFTA is a three-way agreement. Killing the agreement would jeopardize our exports to Mexico, our number one dairy trade partner. While the end of NAFTA wouldn’t necessarily mean the end of trade with Mexico, it would mean the return of Mexican dairy tariffs ranging from 20 to 60%, depending on product. Milk powder, for example, could face a tariff of 45%.

While all of this is going on, USDEC is hoping to raise U.S. exports from 14 or 15% of U.S. production to 20% over the next three to five years. That would require a new home for some 200,000 metric tons of cheese and 450,000 metric tons of dairy ingredients, according to USDEC’s own estimates.

I’m not sure how you get there by threatening to pull out of trade agreements, particularly with your Number 1 and sometimes Number 2 trading partners.