The new US Administration has made renegotiation of the NAFTA one of its top priorities, although when you accumulate a long, long list of “top priorities”, the “priorities” part starts to lose some gravitas. Treating everything as a top priority means that nothing gets the attention that a top priority deserves — a rotation as chief-of-staff gets one wise to that lesson real quick.
But the other day, during an America First event in Wisconsin to showcase his “Buy American, Hire American” agenda, US President Trump pointed to “some very unfair things” happening in Canada that was hurting US dairy farmers.
The President indicated that the situation demanded an explanation from the Canadian government, that it further illustrated how the NAFTA is a “one-sided deal against the United States”. President Trump vowed that “it’s not going to be happening for long”.
Recall that earlier this year Trudeau and Trump met in Washington DC, and the indication by the US President then was that with respect to Canada, the NAFTA merely required a “tweak”. You could hear the sigh off relief, wary as it was, all across the northern tier.
What has changed since then? Well, the President learned about dairy ingredients.
Dairy ingredients, you say. What’s a “dairy ingredient”?
Apparently milk processors can now breakdown milk into constituent parts, and concentrate those ingredients to an extent that long-haul transportation is more cost-effective than previously was the case with (water heavy) milk. And the bonus is that Canada’s border tariff structure, established to protect the domestic industry from imports of milk or milk products with a 200% to 300% tariff wall, doesn’t recognize dairy ingredients as “milk”. So entry to Canada is tariff-free.
Not surprisingly, processors in the US northeast were quick to catch on to the market opportunities presented by send- ing dairy ingredients to Canada, which have been accepted by Canadian processors as less costly inputs in the manufacture of domestic innovations in cheeses and yogurts and dairy drinks.
The uptake has been significant. Between 2012 and 2015, US exports of milk ingredients to Canada increased over 500%. Cha-ching.
It did not take long before the Canadian dairy industry also recognized the opportunity. After some wrangling, it was agreed that Canadian dairy ingredients would be priced competitively at world prices… meaning the same price as imported inputs. No border restrictions applied to US goods. No favouritism applied to domestic product. Just more competitive market conditions at home.
Well, needless to say, this amendment to the Canadian market is perceived some-what differently south of the border.
A number of letters involving various US dairy industry coalitions and US state government representatives have been sent to the new Administration urging action.
And in mid-April, Wisconsin Governor Walker had the ear of the President while the two toured a Snap-on tool manufacturing facility, and complained that dairy farms in the Cheese State were on the brink of collapse because of the “unfair” actions of Canada. The new Canadian pricing policy for domestic dairy ingredients caused those lucrative trade flows to Canada to dry up.
In fairness, the intricacies of bilateral trade in dairy ingredients is insider’s baseball. It is little wonder that the US President chose to take on Canadian dairy policy more generally, which on this side of the border was translated into an attack on supply management. And the usual suspects at home have sounded off since.
But for or against, supply management per se is not on the NAFTA renegotiation table. Domestic policies do need to evolve with the times, but on the basis of internal, domestic considerations and pressures. Domestic policy is not changed at the behest of foreign interests. Foreign interests do not translate into votes at home.
NAFTA renegotiation will entail concessions impacting our supply-managed sectors, to be sure. There will be some form of greater access for US dairy products at the end of the day — the concessions provided to the US at the close of the now defunct Trans-Pacific Partnership deal demonstrated that greater access to the Canadian dairy market is negotiable.
But it is a bit rich to suggest that it would be more “fair” to allow US imports of dairy ingredients to compete at an advantage in the Canadian market. If the roles were reversed, there would be no question what Wisconsin producers, the Wisconsin Governor, or the White House might deem as “fair”.
If Canadian processors were selling in the US or in a third market, and thereby displacing US product, maybe the argument would carry more weight. But giving local farm families the opportunity to compete, especially in their own market… well I would have thought that is the quintessential American way? Made local, buy local… right?
In any event, it does showcase that a NAFTA renegotiation may involve more than a mere tweak.
Rhetoric aside, there are proponents in both countries that understand the enormous benefits derived from integration and efficient bilateral trade flows. Revisit- ing the NAFTA should be embraced as an opportunity to build upon a North American brand for quality, to reinforce a worldwide recognition for safe, healthy foods based on the highest of food safety standards.
Canada and the US should be taking the occasion to work together to harness a regional competitive advantage built on regulatory cooperation in food production.
There are hardworking farm families on both sides of the border looking to their governments to protect a way of life that they hold dear. Is there a way to advance local interests and address the bigger picture concerning global competitiveness? That will be the conundrum of trade negotiators tasked with revisiting the NAFTA.
It will not be easy.
And this is only one of a number of issues likely to complicate trade talks. Autos and auto parts, steel, softwood lumber, energy, Californian Cabernets — there is a lengthy list. We haven’t even started to scratch the surface.
Now I have to tell you, it’s an unbelievably complex subject. Nobody knew [trade] could be so complicated.