Pressure mounts for NAFTA deal with Canada

Yet another deadline is looming for U.S. and Canadian negotiators this week as they struggle to find compromises for a deal to make the North American Free Trade Agreement whole again and avert the unknown territory of trying to convert a three-party pact into a two-party accord.

Sept. 30 is the deadline that would allow the U.S., Mexico and Canada to complete the review and congressional approval of the deal under the U.S. Trade Promotion Authority in time for Mexico’s outgoing president, Enrique Peña Nieto, to sign it before the new administration takes over on Dec. 1.

With just a few days to go before that deadline, the situation looks grim.

“The U.S. has just come out of four weeks of negotiations with our Canadian partners, to which I don’t think they’ve budged one centimeter,” said Cassandra Kuball, director of trade and industry affairs for the Corn Refiners Association. “That’s unfortunate.”

The first deadline put forth by the U.S. was Aug. 31, when the Trump administration threatened to send a notification to Congress that it intended to sign a revised NAFTA with or without Canada. That deadline came and went and the White House sent the notification that included only the U.S. and Mexico.

But talks continued and are still going on, even though they haven’t yielded results. A number of issues continue to confound U.S. and Canadian negotiators, several of which are agricultural matters that U.S. negotiators have promised they will not budge on. Of those, Canada’s dairy policy is the most contentious.

The Trump administration continues to be adamant in its demand that Canada shut down its Class 7 milk pricing program, a relatively new policy that the U.S. dairy industry claims is flooding the international market with subsidized Canadian skim milk powder and doing hundreds of millions of dollars in damage to U.S. exports.

The Canadian Dairy Commission and the federal government implemented Class 7 in February 2017, because they were desperate to boost domestic butter production in response to rising demand and to reduce imports. Class 7 allowed Canada to raise the floor price for milk and spur butter production, but Canadian processors also produced a lot more skim-milk powder and much of that was exported at artificially low prices.

The Canadian Dairy Commission sets the price for non-fat solids by taking the lowest international price and then subtracting estimated costs of processors. U.S. industry data shows those prices are far lower than what U.S. producers sell for. Also, Canadian cheese makers no longer want as much high protein ultrafiltered milk from the U.S. because they can replace much of it with the sharply discounted Canadian non-fat solids.

“The Class 7 has to go away,” Ag Secretary Sonny Perdue told Agri-Pulse. “If you want a supply-management system for the dairy sector … we’re simply saying you need to manage the supply and not allow your producers to overproduce, which reduces the international price that our dairy people have to compete with …”

But the problem is that Class 7 is extremely popular in Canada - especially in Quebec, which is scheduled to hold provincial elections on Oct. 1. Prime Minister Justin Trudeau’s Liberal Party is in a tough fight to retain control over the province that is home to most of the country's dairy farmers and any agreement to dismantle or even weaken Class 7 before the election would likely doom the party's chances of winning, according to industry officials.

“Will Canada agree to a NAFTA renegotiation deal this week, given the high-stakes Quebec election occurring on Oct.1?” asked Lori Wallach, director of Public Citizen's Global Trade Watch. “Our Canadian friends say it’s unlikely given Quebec is ground zero in the dairy trade battle now consuming NAFTA talks. The Liberal Party candidate for premier of Quebec is in a close race, and winning the province is considered vital to Prime Minister Justin Trudeau’s fall 2019 reelection.”

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rudeau’s Liberal Party is already in a precarious position after it lost elections in Ontario by a landslide in June to the Progressive Conservative Party.

U.S. farm industry sources speculate that Canada may be allowed to sign off on a NAFTA compromise deal after the Quebec elections, but House Ways and Means Chairman Kevin Brady, R-Texas, told reporters Tuesday that he doesn’t see that happening.

To make matters even more complicated, Mexico’s president-elect, Andres Manuel Lopez Obrador, says that if Canada does not rejoin NAFTA, Mexico will need to start separate negotiations with the Canadians.

“We would like the government of the United States and the government of Canada to come to an agreement so the treaty can be trilateral, as it was originally signed,” Reuters quoted Lopez Obrador. “But in the event that the governments of the United States and Canada do not come to an agreement ... we would have to maintain the bilateral deal with the United States and seek a similar deal with Canada.”

And when it comes to U.S. and Canadian negotiations, Canadian Minister of Foreign Affairs Chrystia Freeland made it clear to reporters in a recent press conference that the country will not be hurried.

“For Canada the focus is on getting a good deal and once we have a good deal for Canada, we’ll be done,” she said.

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