To the U.S. dairy industry:
Your industry has a window of opportunity for improving access to the Canadian dairy market. However, that window will close if the North American Free Trade Agreement talks fail.
Your chances for improved access will be even worse if the United States withdraws from NAFTA.
U.S. negotiators have made poison-pill demands that neither Canada nor Mexico can possibly accept. These include: a clause that would automatically terminate NAFTA after five years unless all three parties agree to renewal; evisceration of the NAFTA dispute settlement mechanisms including state-to-state dispute settlement that is essential to any well-functioning trade agreement; punitive automotive rules of origin that include a 50 percent U.S.-specific content requirement that violates World Trade Organization requirements; and government procurement rules that would severely reduce the combined access of Canada and Mexico to U.S. procurement markets.
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Congress must approve any agreement that is reached. Kevin Brady, chair of the House of Representatives ways and means committee, opposes weakening dispute settlement procedures.
The U.S. auto industry is vehemently opposed to the proposed auto rules of origin.
The U.S. business community has strongly rejected the proposals on government procurement.
Never mind Canadian and Mexican opposition, these proposals would never be approved by the U.S. Congress.
The opening U.S. proposal on dairy calls for phasing out Canada’s dairy supply management system over a period of 10 years.
Canada’s dairy industry naturally describes this as another poison pill. But unlike the real poison pills, the U.S. position on dairy is not trade-restrictive and can best be described as an aggressive opening position. While Canadian politicians defend Canada’s restrictive supply management system, in fact Canada agreed to some easing of dairy import quotas in a number of recent trade negotiations, including the Trans-Pacific Partnership.
Supply management benefits Canada’s diminishing numbers of dairy farmers, but results in high prices for processors and consumers, at a net cost to our country. Many Canadians want this system replaced and would approve loosening restrictions on U.S. milk products.
Also, rulings by the WTO appellate body preclude the Canadian industry from charging export prices any lower than the high domestic prices. This has effectively shut it out of foreign markets.
The Canadian dairy industry has legitimate concerns about significantly opening the market to U.S. imports. Your industry, which operates on a much larger scale, benefits from subsidies, as well as from lower costs through extensive use of immigrant labour.
U.S. dairy imports could wipe out the Canadian industry unless that structural advantage is addressed.
Also, any transition period should permit Canadian exporters to charge competitive prices in the U.S., notwithstanding the WTO ruling.
All in all, your industry would benefit from greater access to the Canadian market, and this is an achievable outcome of the current NAFTA renegotiations — if, that is, U.S. negotiators remove their poison pills. I recommend that you take whatever steps you can to have them removed so that the NAFTA talks have a chance of success.
Jon Johnson is a former adviser to the Canadian government during North American Free Trade Agreement negotiations and is a senior fellow at the C.D. Howe Institute.