we wrote about a tentative, new deal between Canadian dairy
farmers and processors that will allow Canadian processors to buy
domestic milk ingredients at world market prices. We noted that the
changes contemplated under the new nationwide pricing arrangement
would have a drastic effect on American processors in the
Midwestern and Northeastern United States. The arrangement aims to
incentivize the use of Canadian domestic ingredients, and in doing
so, is expected to significantly reduce American dairy exports of
ultrafiltered (also known as diafiltered) milk into Canada.
Ultrafiltered milk from the U.S. has enjoyed access to the
Canadian market as a duty- and quota-free import into Canada under
the North American Free Trade Agreement
(“NAFTA”). However, under the new
arrangement, Canadian solid non-fats, including ultrafiltered milk,
will be sold at world market prices, therefore extinguishing the
price advantage that existed for American imports.
The national arrangement comes shortly after Ontario has
implemented a similar regime for domestic products in that
U.S. Senators Urge the USTR to Act
The news of Canada’s new pricing arrangement has not gone
unnoticed amongst Capitol Hill. This week, senators from American
states expected to be most deeply affected by the new deal urged
U.S. Trade Representative Michael Froman to investigate whether the
new deal amounted to an infringement of Canada’s obligations
under its free trade agreements. Senators Charles Schumer (New
York) and Tammy Baldwin (Wisconsin) set forth their concerns in an
August 31 letter to Froman and Tom Vilsack, Secretary of the U.S.
Department of Agriculture, noting, “It is troubling that
these dairy pricing programs appear to be designed in ways to
intentionally displace current US imports…Companies from our
states inform us that they have already lost considerable export
sales as a result of the Ontario dairy policy introduced this past
Concerns with Canada’s Trade Commitments
Baldwin and Schumer concentrated their concerns with the new
pricing arrangement on Canada’s international trade
commitments, noting “…we have serious doubts as to how
the [the Ontario] program would be compliant with Canada’s
NAFTA and WTO obligations. We are concerned that Canada now intends
to build upon this model by putting in place a similar policy at
the national level to discourse U.S. dairy exports and we urge you
to investigate the trade compliance of this action.”
They closed their letter with a call to action for Froman and
Vilsack: “Canada cannot be allowed to continually impair the
value of concessions the U.S. previously secured under our prior
trade agreements. We urge you to exhaust all potential avenues to
bring Canada into compliance with its trade commitments.”
The Office of the U.S. Trade Representative and the U.S.
Department of Agriculture have yet to comment on the letter or
Canada’s new nationwide dairy arrangement.
Previous U.S. Concerns with Canadian Dairy Industry
This is not the first time that American politicians have
expressed concerns regarding Canada’s commitments under its
international trade agreements because of changes to its dairy
policy. In June of this year, the National Milk Producers
Federation (“NMPF”) and its
congressional supporters complained of Canada’s efforts to
restrain the importation of ultrafiltered milk duty- and quota-free
at a Ways & Means Trade subcommittee hearing on agricultural
NMPF Chairman Randy Mooney testified that Canada’s new
dairy policy was a “clear violation” of its obligations
under the Canada-US bilateral trade agreement, which have since
been incorporated into NAFTA.
Likewise, Trade Subcommittee Chairman Dave Reichert (WA) stated
that Canada “...simply cannot go back on its commitments in
TPP and NAFTA and limit imports of U.S. dairy products through
protectionist regulatory changes, as it is proposing.” He
urged the subcommittee to clearly and publicly reject Canadian
actions to erect new barriers in the dairy trade.
Stay Tuned for Details
The Canadian Dairy Commission
(“CDC”) is not releasing any details
about the new dairy arrangement until it is ratified by industry
participants. While initial timelines predicted its ratification in
September 2016, latest comment from the CDC has postponed their
timeline until late fall.
Dickinson Wright’s International Trade Group continues to
monitor all changes to the Canadian dairy industry and what they
mean for Canadian producers and US producers and exporters seeking
access to Canadian markets. The Office of the US Trade
Representative’s investigation and response to these changes
is forthcoming and Dickinson Wright will provide further updates as
they become available.
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While that agreement mandated export measures on Canadian softwood lumber exports destined for the United States, it also protected those lumber exports from the potential imposition of onerous import measures by the U.S.
On September 29, 2016, the Supreme Court of Canada issued its first tariff classification decision since Canada signed the International Convention on the Harmonized Commodity Description and Coding System in 1998.
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