The agreement, reached early this week, would replace the 1994 North American Free Trade Agreement if ratified by lawmakers in all three countries. After months of contentious negotiations, the pact eliminates Canadian tariffs on U.S. whey and margarine, and opens Canadian markets to U.S. dairy products.
But the deal isn't perfect. Dairy executives arrived in D.C. this week for a "legislative fly-in" to talk with officials on Capitol Hill about the impact of the new agreement and other trade issues for U.S. dairy manufacturers. At a media briefing Thursday, the dairy CEOs said the agreement is a step in the right direction, but there is still work to be done to eliminate tariffs on dairy exports going into Mexico and tweak new labeling rules.
Michael Dykes, CEO of the International Dairy Foods Association, which hosted the event, said the dairy industry is dependent on trade and IDFA is pleased with the work of the administration on this new agreement, but the exporters came to D.C. to iron out additional trade concerns hurting the industry.
"We think it brings some certainty to the marketplace to have a trilateral agreement," Dykes said, but there is still work to be done.
Tackling the tariffs
Stan Ryan, president and CEO of Darigold, which supports nearly 500 dairy farmers, said the trilateral trade deal is a "significant step forward for our industry and for global trade in general," but also expressed a need for caution.
"We've got a lot more work to do on this before we get too ahead of ourselves," he said.
Mexico, the largest destination for U.S. dairy exports, makes up about 25% of them. But exports to Mexico have decreased since the U.S. placed tariffs on aluminum and steel from several countries. These tariffs are commonly referred to as 232, after the section in the Trade Expansion Act authorizing the president to impose tariffs to restrict imports that may pose a threat to national security.
Mexico responded to the metal tariffs with a 25% import tax on many dairy products earlier this year, and even with the USMCA, those tariffs are still in place, executives said.
Dykes said these retaliatory tariffs on dairy products going into Mexico have placed the U.S. dairy industry at a disadvantage in the marketplace, and a major reason the executives are in D.C. is to work on getting them lifted.
David Ahlem, CEO of Hilmar Cheese Company, a privately owned company supplied by more than 200 dairy families, said trade assurances are critical to their business. Right now, they're losing sales because Mexico is essentially closed to their cheeses. One third of the milk Hilmar processes every day goes to service export markets, he said.
"We're not ready to celebrate because as long as 232 retaliatory tariffs are still in place... we can't enjoy the benefits of having a modernized NAFTA and be back to where we were," Ahlem said.
“We're not ready to celebrate because as long as 232 retaliatory tariffs are still in place ... we can't enjoy the benefits of having a modernized NAFTA and be back to where we were."
CEO of Hilmar Cheese Company
The proposed deal would also remove Canada's "Class 7" milk pricing policies, which make it cheaper for Canadian processors to buy domestic supplies of ultra-filtered milk for cheeses. This could help U.S. farmers along the border become more competitive. While the dairy industry was happy to see this policy eliminated, Ahlem said he isn't "ready to take the victory lap" until tariffs are eliminated.
The United States is also facing Chinese tariffs on U.S. exports of products such as whey and dairy. Ahlem said suppliers and consumers in Mexico and China are starting to look to other countries to supply these commodities because of the barrier the tariffs have created.
"What's happening now is our customers are looking at us and they said, 'Can we depend on you?' " Ahlem said. "The answer and the conclusion they're drawing is no, so they're looking at dual supply and long term that's the big hit for us."
Struggle over labeling exports
The dairy executives said another issue they are dealing with is restrictions on names of U.S.-produced cheeses exported to Mexico. A side letter in the proposed USMCA allows imports into that country using common names for most cheeses, but not popular ones derived from locations in Italy, such as "Asiago" or "Parmesan."
Jim Sartori, CEO of Sartori Cheese, which exports these kinds of specialty cheeses, said he is particularly concerned about the possibility of changing those names.
"That has become very problematic for us in terms of labeling our products with common names that are used throughout the world," he said.
Satori said they are still negotiating at this point, but could ultimately need to rename cheeses and spend money and time reeducating consumers in Mexico.
"The EU has just done a better job of negotiating and the U.S. has just been reactive," he said.
"The EU has just done a better job of negotiating and the U.S. has just been reactive."
CEO of Sartori Cheese
Dykes agreed, saying that companies work for more than 10 years to develop a market for a brand of cheese and "then almost overnight you can no longer call your cheese" by that name. "That’s a pretty hard hit," he added.
Uncertainty and the future
Dykes said officials on Capitol Hill are unclear and uncertain about the process for removing the tariffs. He said it is also unknown whether the new agreement will be voted on before this Congress adjourns at the end of the year. Dykes said it's important to get the trade deal approved as soon as possible.
"It's in the interest of everyone to have a trilateral agreement and to bring certain stability to the marketplace," Dykes said. "The markets do far better when we remove the uncertainty."
But that lack of clarity extends beyond this agreement. The dairy exporters urged the three countries to take action on the deal so they can move forward on more trade issues. Ahlem said global dairy competitors in the EU and Australia are already actively working on trade agreements much more aggressively than the U.S.
"We would like to move past NAFTA and past 232 tariffs...and aggressively work at forming some other bilaterals or free trade agreements around the world," he said.