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1 1 (December 16, 2019)

handle is hein.crs/govbfvy0001 and id is 1 raw text is: 01;0i E.$~ & - , gnom ggmm , q rq\\ 'S a X Updated December 16, 2019 Dairy Provisions in USMCA On November 30, 2018, the leaders of the United States, Canada, and Mexico signed the U.S.-Mexico-Canada Agreement (USMCA) to revise the North American Free Trade Agreement (NAFTA). The legislative bodies in each country must now ratify the agreement for it to come into force. Mexico and Canada are two of the largest markets for U.S. dairy product exports. In recent years, the two USMCA partners have accounted for more than a third of the total value of U.S. dairy product exports. In 2018, U.S. dairy exports to Mexico were valued at $1.4 billion and to Canada at $731 million (Figure 1) out of total dairy exports of $5.9 billion. Mexico is the leading market for U.S. cheese and nonfat dry milk exports. Canada is the leading export market for butter and processed dairy products (e.g., infant formula, milk drinks, and ice cream). USMCA would preserve duty-free access for U.S. dairy products in Mexico. The agreement with Canada includes two key provisions: the elimination of the Canadian Class 7 milk price and increased market access for selected dairy products (both discussed below). Figure I. Leading Markets for U.S. Dairy Exports Billion $ ..... ....... .... .... N..... 'mEMN ... ........ .... ...............iiiiiiii .........iiiiiiiiiii ...... .................. ...............i~ii~ii~ ...............:::::::: @ N N S .... . . . . . . . . . ............... .1\0000 ........... ....... ....... Source: USDA, Global Agricultural Trade System, Foreign Agricultural Trade of the United States, dairy category. Note: Dairy totals are adjusted to include protein isolates. Ultra- filtered (UF) milk is classified as a protein isolate (HTS code 3504001000). It is not included in the USDA dairy categories. Under NAFTA, U.S. dairy product exports enter Mexico duty free. U.S. dairy exports to Mexico totaled $193 million in 1994 when NAFTA entered into force and have steadily risen to $1.4 billion in 2018. Mexico has been the leading market for U.S. dairy exports since 2004, and the United States is the leading source of dairy imports in Mexico. One concern in the USMCA negotiations for the U.S. dairy industry was that its access to Mexico be preserved, especially as Mexico negotiates other free trade agreements (FTAs). In April 2018, Mexico signed an FTA with the European Union that includes new rules for agricultural goods, and Mexico is also a party to the Comprehensive and Progressive Trans-Pacific Partnership (TPP- 11), which includes Australia and New Zealand. All three are major global dairy exporters. Under USMCA, Mexico's zero tariffs for U.S. dairy product exports would be preserved. In addition, in a side letter, Mexico confirmed that U.S. market access for 33 cheeses would be protected under USMCA (see box). Some cheese producers have noted that the list is not comprehensive of all cheese varieties exported to Mexico, and additional work may be needed to preserve access. Recognized U.S.-Mexico Cheese Names Blue, Blue vein, Brie, Burrata, Camembert, Cheddar, Chevre, Colby, Cottage, Coulommiers, Cream, Danbo, Edam, Emmental, Emmentaler, Emmenthal, Gouda, Grana, Havarti, Mascarpone, Monterey Jack, Mozzarella, Pecorino, Pepper Jack, Provolone, Ricotta, Saint-Paulin, Samso, Swiss, Tomme, Tome, Toma, and Tilsiter Although Canada is the second-leading export market for U.S. dairy products, some dairy analysts believe U.S. exports could be higher but for Canadian import restrictions. The Canadian dairy sector operates under a supply management system that limits production, sets prices, and restricts imports. Canadian imports of dairy products are restricted through tariff-rate quotas (TRQs), with high over-quota tariffs of up to 315.5%. In recent years, strong demand for butter in Canada resulted in increased Canadian milk production and, consequently, surplus skim milk supplies. To address the surplus, Canada adopted the Class 7 milk price classification in 2017 (Class 6 in Ontario). Class 7 is comprised of skim milk components, primarily milk protein concentrates (MPC) and skim milk powder (SMP) used to process dairy products. Under the Class 7 regime, domestic skim milk products became cheaper for domestic producers, Canada expanded global exports of SMP, and U.S. producers lost exports of high protein ultra-filtered (UF) milk to Canadian cheese and yogurt processors. UF milk was not covered under a dairy TRQ negotiated under global trade agreements or NAFTA. This allowed U.S. UF milk duty-free access to the Canadian market. According to the U.S. Department of Agriculture (USDA), the value of U.S. UF milk exports to Canada peaked at nearly $107 million in 2015 but declined sharply after the Class 7 regime was implemented in 2017 from $102 million in 2016 to $49 million in 2017 and $32 million in 2018. At the same time, Canada's total exports of SMP more than tripled in 2017 to $133 million compared with $42 million in 2016 before the Class 7 price regime was implemented. Eliminating Canada's Class 7 pricing regime was a priority for the U.S. dairy industry for NAFTA renegotiations.

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