Canada gave ground to the U.S. in the North American Free Trade Agreement replacement deal agreed to Sunday by rolling back protections for its domestic dairy industry, providing a victory to American farmers on one of the key points of negotiation.
Canada gave the U.S. greater access to its dairy markets in exchange for largely retaining the old NAFTA’s rules regarding legal protections for foreign investors. Retaining those rules had been one of Canada’s main goals in the deal, while President Trump had often championed U.S. dairy farmers.
“Dairy was a deal breaker,” Trump said in comments on the deal at the White House Monday. “Now for the farmers, it’s substantially opened up much more.”
The deal the U.S. hammered out with Mexico had eliminated its so-called “Chapter 19,” which involves settling disputes over levies and anti-dumping rules. The deal announced Sunday evening with Canada, dubbed the United States-Mexico-Canada Agreement or USMCA, retains the same basic language from the original NAFTA, but, in an apparent symbolic move, places it in a different chapter of the text.
[Read: Trump heralds ‘wonderful’ non-NAFTA trade deal with Canada, Mexico]
In exchange, Canada will phase out its milk pricing system, which provided price supports to its dairy industry.
“The top priority for America’s dairy industry in this negotiation has been for Canada to eliminate its program that allows low priced dairy ingredients to undersell United States dairy sales in Canada and in third country markets. As a result of the negotiation, Canada will eliminate what is known as its milk classes 6 and 7,” the U.S. Trade Representative’s Office said Monday.
Dairy was one of the few issues not covered in the initial NAFTA deal, and Canadian tariffs on U.S. imports totaled as much as 300 percent. Industry lobbyists pushed the White House hard to try to undo Canada’s protectionist policies, and Trump became a vocal supporter of their cause, often railing against Canada’s policies in tweets. In a Sept. 11 interview on Fox Business White House economic adviser Larry Kudlow identified it as the key factor that was holding up a deal.
“The rules attempt to curb Canadian exports of dairy products, and subsidized Canadian prices, which will be sold as giving US farmers greater access to world markets at fair terms,” said Gary Hufbauer, a researcher at the Peterson Institute for International Economics. “However, Canada can claim to its dairy farmers that supply management is still alive and well.”
Hufbauer added that the deal’s quotas for dairy products allow rapid growth in U.S. exports free from tariffs for the next eight years or so. “That’s a big concession by Canada,” he said.
The new trade agreement also includes a sunset provision, eliminating the deal after 16 years unless the U.S., Mexico, and Canada agree to extend it. The Trump administration had initially pushed for a five-year renewal requirement.
The main aspects of the deal the Trump administration struck with Mexico were retained. The most far-reaching provision alters the so-called “rules of origin” under NAFTA by setting at 75 percent the amount of North American-made parts needed for a car or truck to be duty-free under NAFTA, up from 62.5 percent. It also required that at least 40 percent of all auto content be made by workers making at least $16 an hour or its equivalent.
