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Dairy to see some gain under USMCA, but farm tariffs stand

WASHINGTON, D.C. — Canada has agreed to join a new trade agreement with the United States and Mexico, but work remains before the deal is final.

U.S. dairy remains a winner and a loser in the new agreement, currently being called the United States-Mexico-Canada Agreement, or USMCA. Canada has agreed to remove the Class 7 pricing that decreased the cost of domestic milk byproducts used in cheese production. U.S. farmers were exporting the product to Canada for several years before the pricing change. As a result, U.S. dairy farmers lost the market.

Canada has also acquiesced to limit the amount of dry milk product sent to the global market, a term settled upon in the Canada-European Union agreement.

But the steel and aluminum tariffs the U.S. put in place still impact Canada and Mexico, which means the retaliatory tariffs from those countries, largely put on agriculture products, will remain in place. Dairy has been among the hardest-hit industries as a result of the retaliatory tariffs.

"Canada is the No. 1 market for ag exports and Mexico is No. 3," said Dave Salmonsen, an American Farm Bureau Federation senior director of Congressional relations. "That was the big issue … NAFTA never covered every trade issue."

The decades-old trade dispute with Canada about soft timber is older than the North American Free Trade Agreement, and was not addressed in the new pact, he said. That dispute continues.

A new dairy formula will be in place, now that the Class 7 pricing will no longer be used, but no one knows how it will work yet, Salmonsen said. Canada will still retain some control of the market, but it will reopen areas of the market to U.S. dairy products.

Wheat, however, will benefit. Canada automatically makes all imported wheat feed-grade. The high-quality, human food wheat from the U.S. automatically decreases in value if it crosses the border and is labeled feed grain; this is a practice that will end.

The U.S. agreed to leave the dispute settlement panel in place and also agreed to change the wording of the “sunset clause.” As has been reported from the U.S.-Mexico agreement, the agreement will not automatically expire every five years, but will be renewed every 16 years.

U.S. Rep. Ron Kind (D-Wis.) and others from the House of Representatives have asked for more details and more protections regarding the dairy aspect of the agreement. "Let's not use dairy as a bargaining chip, at the end of the day,” Kind said.

“I'm glad they made some progress with dairy, but we want the best possible agreement. While everyone may have the best intentions at this time, details about the new pricing method need to be known before an agreement is approved, he noted.

The rush to sign something was to allow Congress to have the required 60 days to review the document before current Mexican President Enrique Peña Nieto leaves office at the end of November. The tentative agreement between Canada and the U.S. was reached hours before the deadline that would have missed the end of Nieto's term.

Kind said most of the changes in the agreement would have been addressed if the U.S. had remained in the Trans-Pacific Partnership – which included Canada and Mexico – with the added bonus of additional market access to 10 Asian countries and decreasing thousands of tariffs.

And while the U.S. will leave steel and aluminum tariffs in place, and Canada and Mexico will leave ag tariffs in place, crops from other countries will start to replace U.S. market share. Once that access is lost, it's almost impossible to get back, Kind said.

"Farmers that were expecting relief aren't going to get any," he said. "Right now, we're just hearing about the silver lining."

Mexico has agreed to a minimum wage for workers developing a percentage of car parts, but that isn't enough, Kind said. The plan needs to be stronger, with repercussions if they don't reach goals.

Right now, the only repercussion is a 2.5 percent tariff, and the government might decide that is a better option to paying wages similar to U.S. and Canadian levels.

The tariff on dairy is directly impacting farmers, he said. In Wisconsin alone, there are record-breaking numbers of bankruptcies on farms, and hearing USDA Secretary Sonny Perdue or President Trump say the farmers will deal with it makes him angry.

"To expect them to be patriotic and take one for the team when they're losing family farms is ridiculous," Kind said. "They don't want bailouts or subsidies. They want to sell their products."

He agrees to updating agreements, but believes the language used was unnecessarily aggressive. He is happy the agreement is trilateral, but there is still work to be done and Congress needs to review the details.

The leaders of each country will sign it the last day of November, then studies will be done. It will likely not go into effect until the spring, Kind thinks.