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Success for dairy means tariffs lifted, new trade deals in 2019

Michael Dykes

Michael Dykes, president and CEO of the International Dairy Foods Association, contributes this column bimonthly for Cheese Market News®.

These last few weeks of 2018 have brought progress to the tumultuous trade actions that have ebbed and flowed this year. We’ve seen three national leaders sign the U.S.-Mexico-Canada Agreement (USMCA) and China and the United States agreed to a temporary truce, until March 1, to work on resolving their tariff issues.

We’re pleased that the administration also announced that it’s preparing negotiating objectives for a bilateral pact with Japan and plans to move forward with trade negotiations with the European Union, Philippines and United Kingdom. These new agreements are much needed in our industry.

However, troublesome tariffs continue to stand in dairy’s way.

Current retaliatory tariffs prevent this positive progress from translating into realized benefits for U.S. dairy with Mexico and China, top markets for U.S. dairy. But, IDFA is amplifying our voice in Washington and adopting a laser focus on lifting the tariffs to turn these trade agreements into opportunities for dairy.

We’ll start first with the USMCA, the most glaring example of our troubles with tariffs.

The three countries late last month signed an agreement that achieves IDFA’s priorities. It preserves access to Mexico, U.S. dairy’s No. 1 market abroad. It also eliminates the Canadian Class 6 and 7 pricing programs, increases U.S. dairy market access in Canada and includes some market access protections for common cheese names.

What the signing countries didn’t do, however, is lift their import and retaliatory tariffs to make many of these benefits available to our industry now. As it stands, the agreement is a hollow victory unless the Section 232 tariffs on steel and aluminum imports, and Mexico’s resulting retaliations on U.S. dairy, are lifted.

With the retaliations still in place, U.S. dairy is encountering challenges in Mexico — to the tune of up to 25 percent tariffs — where our industry previously once had duty-free access and represented a quarter of all U.S. cheese exports.

With so much at stake, we’ve rallied our members and amplified their concerns in Washington. We’ve met with lawmakers, as well as administration officials who are instrumental collaborators within the Trump administration on trade policy. We’ve also stressed the issue in testimony to the International Trade Commission and in Capitol Hill briefings.

Our message? Equitable free trade agreements that open markets and lower trade barriers are crucial to continuing the trend of a vibrant and growing dairy industry.

Dairy’s next biggest obstacle abroad? The ever-increasing tariff tradeoff with China that began this spring. Damage to dairy’s growing export market is already palpable. The country is the third-largest export market for U.S. dairy and the leading market for U.S. whey. Unfortunately, the 25 percent retaliatory tariffs China placed on U.S. whey and cheese, in response to the tariffs America placed on Chinese products for intellectual property concerns, are derailing this growth.

In July and August, the first months with the retaliatory tariffs in place, U.S. whey exports declined 28 percent year-over-year. Similarly, U.S. cheese exports declined 46 percent in July and August, year-over-year.

President Donald Trump and Chinese President Xi Jinping reached an agreement this month to freeze tariffs temporarily at current levels without additional escalation for a period of 90 days, beginning Dec. 1, during which the countries will host trade talks.

While a near-term solution may be unlikely during this period, we’re using this time to stress to U.S. trade negotiators that China’s retaliatory tariffs are costing the U.S. dairy industry millions in sales, market share and jobs. Dairy companies shipping products to China have had their boats refused entry and had to turn around in the Pacific due to these tariffs and the resulting market uncertainty.

Dairy needs to reverse these actions in 2019.

The brightest opportunity for change in the Asia-Pacific region next year is shaping up to be a new U.S. trade pact with Japan. U.S. dairy exports currently face high tariffs, limited tariff-rate quotas and other barriers to trade in the Japanese market.

The administration announced its intent to enter talks with Japan on a bilateral agreement this fall and is now developing negotiating objectives. This is a positive step because the Japanese market is U.S. dairy exports’ fourth-largest, representing sales of more than $290 million last year.

A meaningful agreement for us would ensure the U.S. industry can compete on a level playing field. We expect Australia and New Zealand to soon gain increased market access for butter, cheese, milk powders and whey when the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) enters into force. The European Union will also enter a free trade agreement with Japan in February, gaining more access for its cheese, butter, evaporated milk, milk powder and whey products.

An aggressive, proactive trade strategy is critical for the U.S. dairy industry.

IDFA has urged U.S. negotiators to improve access and include key provisions that would allow American companies to compete equitably in international markets. We’ve also stressed that taking down non-tariff barriers to trade is critical for our continued growth. IDFA is already making plans to hit the ground running when trade talks begin next year.

Lifting tariffs, expanding markets and negotiating new trade agreements is our major focus in 2019! The more than 50 additional billion pounds of U.S. milk coming online in the next decade will find its home in markets abroad, if we can secure these critical dairy provisions now. Expanded trade will benefit producers and processors alike.

Next year, IDFA aims to decrease the market uncertainty created by the tariffs and turn the tide for trade actions that are meaningful to dairy.

I invite you to join us at Dairy Forum 2019 in Orlando, Florida, especially for the final session on Jan. 23, where experts from McKinsey & Co. will discuss how U.S. dairy can meet these trade challenges and be positioned for global growth.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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