Largest Trade Agreement Ever Mixed for U.S. Dairy

October 8, 2015 01:27 PM

After five days of wrangling in Atlanta, negotiators from 12 nations this week announced a deal on the Trans-Pacific Partnership (TPP) that will lower trade barriers to goods and services for two-fifths of the global economy.

Besides the United States, the nations involved are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

“This historic accord includes provisions to open Japan’s and Canada’s stringently protected dairy sectors to imports from TPP members, including the United States,” notes Sarina Sharp, agricultural economist with the Daily Dairy Report. At the same time, though, the United States opened its market to more imports from New Zealand and Canada.

As part of the deal, Canada will accept foreign dairy products representing about 3.25 percent of the country’s annual dairy production. This concession was partially offset by a gradual reduction of the tariffs that the United States levies on artisanal cheeses imported from Canada, says Sharp.

In the aftermath of the deal, which still needs to be ratified, industry observers in Canada were both concerned and elated. Some suggested that opening the country to imports that equate to just over 3 percent of annual milk production is a big win for the industry, while others called it the beginning of the end of supply management.

“Canada will allow imports of fluid milk, but 85 percent of that milk must be processed in Canada. Given the geographical distance of the other TPP partners, the United States is likely to be the sole source of Canada’s raw milk imports,” says Sharp. “Exporters like New Zealand and Australia are more likely to send milk powders, cheese, and butter to Canada.”

To soften the blow, the Canadian government approved a $4.3-billion package of income and quota value guarantees to be paid over the next 15 years, set aside $450 million for improvements to dairy, egg, and poultry processing facilities, and earmarked $15 million to promote Canadian dairy products.

Like Canadian producers, New Zealanders were also ho-hum on deal. According to news reports, gains made in tariff removals on some cheeses and infant formula exported to the United States over the next 10 years came in on the positive side of the ledger for New Zealand producers, but increased access for whole milk powder remained elusive.

Fonterra Chair John Wilson noted that the outcome was far from perfect for New Zealand producers. "The entrenched protectionism demonstrated by the U.S. dairy industry in particular had ensured that the deal on dairy failed to reach its potential," Wilson said in a news report.

Sharp notes, “Now that trade negotiators have finished, the real politics will begin. The TPP must be ratified. In the United States, it is unlikely to come to a Congressional vote until early next year. Canadian voters will head to the polls on Oct. 19, and if the deal proves unpopular in coming weeks, it could become a major election issue.”


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