Canada is ready to offer concessions to the U.S. on its dairy pricing and import policies, addressing one of the major obstacles to a deal to update sections of the North American Free Trade Agreement, according to a report Tuesday.
Canadian Foreign Minister Chrystia Freeland met in Washington Tuesday with U.S. Trade Representative Robert Lighthizer to discuss a trade deal.
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“I think we understand there are certain issues on which we will need to compromise,” a source close to the talks told Reuters regarding increased dairy access for the U.S. Further details of the deal were not immediately available.
The news suggests that the two sides may be closer to an agreement to approve an earlier deal the U.S. struck with Mexico regarding auto industry imports.
A key issue in the talks has been Canada’s policy called “class seven” pricing for dairy products. The policy allows Canadian dairy companies to pay what U.S. companies claim are below-market prices for milk to make things like cheese and yogurt while exporting the rest as skim milk powder. On top of that, U.S. dairy imports face tariffs that can rise as high as 300 percent.
“It was a program instituted by Canada two years ago to stop the import of ultra-filtered milk from the U.S. It worked,” David Salmonsen, senior director of government relations for the American Farm Bureau Federation, told the Washington Examiner. “This is the program that had an immediate impact on dairy farmer members of those dairy co-ops that were producing this product for export to Canada.”
It is not clear what Canada is getting in return, but the Mexican deal scrapped NAFTA’s Chapter 19, which involves settling disputes over levies and anti-dumping rules. Maintaining the provision was a key concern for Canada.
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Dairy was one of the few issues not covered in the initial NAFTA deal. Industry lobbyists, who declined to speak on the record given the sensitivity of the issue to the talks, have pushed the White House hard to try to include dairy, and it appears to have become a particular priority for the administration.
In an appearance on Fox Business last week, Trump economic adviser Larry Kudlow said: “I think the United States would rather have a trade deal with Canada, but it has to be a good deal, right? And the word that continues to block the deal is M-I-L-K … Drop the barriers, and give our farmers a break.”
Trump appears particularly outraged by it. He has repeatedly zeroed in on the Canadian policies in tweets and speeches over the past two years. “Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers!” he said in a June 18 tweet.
When Trump threatened to pull out of NAFTA entirely in April 2017, he had met that month with Wisconsin dairy farmers.
“We’re also going to stand up for our dairy farmers in Wisconsin … and that demands, really, immediately fair trade with all of our trading partners, and that includes Canada,” he said in a speech that month at Kenosha, Wis.
Canada has balked at any changes, however, arguing the policies are crucial to its own farmers’ security.
Despite the high barriers for entry for U.S. products, it is Canada that has a trade deficit with the U.S. Canada imported $792 million in U.S. dairy products last year, according to the U.S. Dairy Export Council, but exported just $149 million to the U.S.
Such figures aren’t much comfort to farmers in New York and Wisconsin, who still find themselves blocked out of Canadian markets.
After a first round of talks between the U.S. and Canada failed to result in Canada assenting to the administration’s bilateral trade deal with Mexico, the administration submitted the deal to Congress in late August, arguing that Canada’s support is not essential to the deal’s approval.
The main provision of the U.S.-Mexican agreement alters the so-called “rules of origin” raising up to 75 percent, up from 62.5 percent, the amount of North American-made parts needed for a car or truck to be duty-free under NAFTA. It also required that at least 40 percent of all auto content be made by workers earning at least $16 an hour or its equivalent. Both changes would force auto manufacturers to move more production back into the U.S.
The key issue for Canada was a section in the deal that scrapped NAFTA’s Chapter 19, which involves settling disputes over levies and anti-dumping rules.
The lack of support from Canada could nevertheless cause Trump’s deal to stall in Congress, many lawmakers having argued that Canada must be on board to prevent the deal from disrupting the NAFTA.
A representative for the Canadian embassy said that Canada would not negotiate in public.
