Possibly to everyone’s surprise on the last day of September, The U.S., Mexico, and Canada reached a dramatic deal revising the North American Free Trade Agreement. Despite haggling over what to call it (but that’s what negotiators do), President Donald Trump won out and insisted it be named “USMCA.”

For those that have studied the new pact, one will find some significant changes. Still, to be approved by the U.S. Congress, we try to take the fine print on the USMCA and extrapolate exactly what this trilateral trade agreement means to agriculture.

All food and agricultural products that have zero tariffs under the North American Free Trade Agreement (NAFTA) will remain at zero tariffs.  Since the original NAFTA did not eliminate all tariffs on agricultural trade between the United States and Canada, the USMCA will create new market access opportunities for United States exports to Canada of dairy, poultry, and eggs, and in exchange the United States will provide new access to Canada for dairy, peanuts, processed peanut products, and a limited amount of sugar and sugar-containing products.

Key Achievement:  Increasing Dairy Market Access

In addition to the current exports of dairy products that the United States makes to Canada of $619 million in 2017, Canada will provide new tariff rate quotas exclusively for the United States.  The agreement includes market access gains for the following American products:

·         Fluid Milk:  50,000 metric tons (MT) by year six of the agreement, growing one percent for an additional 13 years.  Eighty-five percent of the quota will be reserved for further processing.

·         Cheese: 12,500 MT by year six of the agreement, growing one percent for an additional 13 years.  Fifty percent of that amount will be available for any kind of cheese, while the remainder will be for industrial cheeses.

·         Cream:  10,500 MT by year six of the agreement, growing one percent for an additional 13 years.  Eighty-five percent of the volume in year one will be reserved for further processing.

·         Skim Milk Powder:  7,500 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Butter and Cream Powder:  4,500 MT by year six of the agreement, growing one percent for an additional 13 years.  Eighty-five percent of the volume in year one will be reserved for further processing, which will be reduced to 50 percent by year five.

·         Concentrated and Condensed Milk:  1,380 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Yogurt and Buttermilk: 4,135 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Powdered Buttermilk: 520 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Products of Natural Milk Constituents: 2,760 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Ice Cream and Ice Cream Mixes: 690 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Other Dairy: 690 MT by year six of the agreement, growing one percent for an additional 13 years.

·         Whey:  4,134 MT by year six of the agreement, growing one percent for an additional 4 years. Whey will have its over-quota tariff eliminated in 10 years.

·         Margarine:  Tariff elimination in five years.  The margarine rule of origin for use in trade between the United States and Canada will allow the use of non-originating palm oil in the manufacture of margarine.

·         The United States will provide reciprocal access on a ton-for-ton basis for imports of Canada dairy products through first-come, first-served tariff rate quotas.

Key Achievement:  Canada’s Milk Class Pricing System

Six months after entry into force of the USMCA, Canada will eliminate milk price classes 6 and 7.  Canada will ensure that the price for skim milk solids used to produce nonfat dry milk, milk protein concentrates, and infant formula will be set no lower than a level based on the United States price for nonfat dry milk.  Canada has also committed to adopting measures designed to limit the impact of any surplus skim milk production on external markets.  These measures include the resumption of its program to use skim milk domestically as animal feed and a new commitment to cap its exports of skim milk powder, milk protein concentrates, and infant formula.  For skim milk powder and milk protein concentrates, the aggregate export cap will be 55,000 MT in the first year after the agreement enters into force, falling to 35,000 MT in the second year.  Exports that exceed this threshold will face an export surcharge of C$0.54 per kilogram.  For infant formula, the export cap will be 13,333 MT in the first year, increasing to 40,000 MT in the second year.  Exports that exceed this threshold will face a surcharge of C$4.25 per kilogram.  Both caps will be increased by 1.2 percent a year, an amount equivalent to Canada’s historical population growth.  To assist with monitoring implementation of this new program, Canada has agreed to discuss any matter related to this mechanism upon request of the United States, and both countries will review the agreement five years after entry into force and every two years thereafter.

Key Achievement:  Expanding Poultry and Eggs Market Access

In addition to the $600 million worth of poultry and egg products that the United States exported to Canada in 2017, Canada will provide new tariff rate quotas for the United States as follows:

·         Chicken:  47,000 MT increasing to 57,000 MT by year six of the agreement, growing one percent for an additional 10 years.  The United States will still be eligible to export up to 39,844 MT under Canada’s World Trade Organization (WTO) tariff rate quota regime.

·         Egg and Egg Products: 1.67 million increasing to ten million dozen eggs and egg-equivalent products in year six of the agreement, growing one percent for an additional 10 years.  Canada has agreed to allow 30 percent of import licenses for shell egg imports to be granted to new entrants as well.  As with chicken, the United States will still be eligible to export up to 21.37 million dozen-egg and egg-equivalent products under Canada’s WTO tariff rate quota regime.  

·         Turkey: Canada has agreed to provide the United States and other country members of the World Trade Organization access equivalent to no less than 3.5 percent of the previous year’s total Canadian turkey production.  This will allow the United States to export additionally up to 1,000 MT of turkey products each year for the next 10 years than the current access and potentially more thereafter.

·         Broiler Hatching Eggs: The United States continues to maintain current access as agreed to under the Canada-US Free Trade Agreement (CUSFTA) of 21.1 percent of Canada’s domestic production.

Key Achievement: Most Comprehensive Set of Enforceable Environmental Obligations

The Environment chapter includes the most comprehensive set of enforceable environmental obligations of any previous United States agreement, including obligations to combat trafficking in wildlife, timber, and fish; to strengthen law enforcement networks to stem such trafficking, and to address pressing environmental issues such as air quality and marine litter.

Environment obligations include:

  • Prohibitions on some of the most harmful fisheries subsidies, such as those that benefit vessels or operators involved in illegal, unreported, and unregulated (IUU) fishing.
  • New protections for marine species like whales and sea turtles, including a prohibition on shark-finning and commitment to work together to protect marine habitat.
  • Obligations to enhance the effectiveness of customs inspections of shipments containing wild fauna and flora at ports of entry and ensure strong enforcement to combat IUU fishing.
  • First-ever articles to improve air quality, prevent and reduce marine litter, support sustainable forest management, and ensure appropriate procedures for environmental impact assessments.
  • Robust and modernized mechanisms for public participation and environmental cooperation

Strengthening North American Trade in Agriculture

The United States, Mexico, and Canada have reached an agreement to benefit American farmers, ranchers, and agribusinesses.  While agriculture has generally performed well under NAFTA, important improvements in the agreement will enable food and agriculture to trade more fairly and to expand exports of American agricultural products.

Key Achievement: Expanded Market Access for American Food and Agricultural Products.

America’s dairy farmers will have new export opportunities to sell dairy products into Canada.  Canada will provide new access for United States products including fluid milk, cream, butter, skim milk powder, cheese, and other dairy products.  It will also eliminate its tariffs on whey and margarine.  For poultry, Canada will provide new access for United States chicken and eggs and increase its access for turkey.  Under a modernized agreement, all other tariffs on agricultural products traded between the United States and Mexico will remain at zero.

Key Achievement: Canada’s Milk Classes 6 and 7 to Be Eliminated

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.  In addition, Canada will apply export charges to its exports of skim milk powder, milk protein concentrates and infant formula at volumes over the agreed threshold, which will allow United States producers to expand sales overseas.

Key Achievement: Setting Unprecedented Standards for Agricultural Biotechnology

For the first time, the agreement specifically addresses agricultural biotechnology to support 21 st century innovations in agriculture. The text covers all biotechnologies, including new technologies such as gene editing, whereas the Trans-Pacific Partnership text covered only traditional rDNA technology.  Specifically, the United States, Mexico, and Canada have agreed to provisions to enhance information exchange and cooperation on agricultural biotechnology trade-related matters.

Key Achievements: Significant Commitments to Reduce Trade Distorting Policies, Improve Transparency, and Ensure Non-Discriminatory Treatment for Agricultural Product Standards

Building on NAFTA, the United States, Mexico, and Canada agreed to work together in other fora on agriculture matters, improve transparency and consultations on matters affecting trade among the countries.

The United States, Mexico, and Canada agreed to several provisions to reduce the use of trade-distorting policies, including:

  • To not use export subsidies or the World Trade Organization (WTO) special agricultural safeguards for products exported to each other’s market.
  • Improved commitments to increase transparency and consultation regarding the use of export restrictions for food security purposes.
  • If supporting producers, to consider using domestic support measures that have minimal or no trade distorting or production effects and ensure transparency of domestic support programs.

Canada and the United States also agreed to strong rules to ensure tariff-rate quotas are administered fairly and transparently to ensure the ability of traders to fully use them.

Key Achievement:  Fair Treatment for Quality Requirements for Wheat and other Agricultural Products

Canada has agreed to grade imports of United States wheat in a manner no less favorable than it accords Canadian wheat and do not require a country of origin statement on its quality grade or inspection certificate.  Canada and the United States also agreed to discuss issues related to seed regulatory systems.

To facilitate the marketing of food and agricultural products, Mexico and the United States agreed that grading standards and services will be non-discriminatory for all agricultural goods and will establish a dialogue to discuss grading and quality trade-related matters.

Key Achievement:  Enhanced Rules for Science-Based Sanitary and Phytosanitary Measures

In the Sanitary and Phytosanitary (SPS) Measures chapter, the United States, Mexico, and Canada have agreed to strengthen disciplines for science-based SPS measures while ensuring Parties maintain their sovereign right to protect human, animal, and plant life or health.  Provisions include increasing transparency on the development and implementation of SPS measures; advancing science-based decision making; improving processes for certification, regionalization and equivalency determinations; conducting systems-based audits; improving transparency for import checks; and working together to enhance compatibility of measures.  The new agreement would establish a new mechanism for technical consultations to resolve issues between the Parties.

Key Achievement:  New Disciplines on Geographic Indications

The Parties agreed to provide important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establish a mechanism for consultation between the Parties on future GIs pursuant to international agreements.  

Key Achievement:  Market Access for Certain Cheese Names

Mexico agreed to not restrict market access in Mexico for U.S. cheeses labeled with certain names. 

Key Achievement: Prohibiting Barriers for Alcohol Beverages

The United States, Mexico, and Canada agreed to non-discrimination and transparency commitments regarding sale and distribution and labeling and certification provisions to avoid technical barriers to trade in wine and distilled spirits.  They agreed to continue recognition of Bourbon Whiskey, Tennessee Whiskey, Tequila, Mezcal, and Canadian Whisky as distinctive products. 

Key Achievement:  New Protections for Proprietary Food Formulas

To meet technical regulations and standards related to prepackaged food and food additives, governments may require information from companies relating to the companies’ proprietary formulas.  The United States, Mexico, and Canada agreed on the Annex on Proprietary Food Formulas, which requires each Party to protect the confidentiality of such information in the same manner for domestic and imported products.  It also limits such information requirements to what is necessary to achieve legitimate objectives.

Next Steps: USMCA Trade Agreement

There are key milestones still to be made before USMCA becomes a reality. The Next steps are key to having the new agreement fully roll out.

1.      President Trump provides the text of the trade agreement to Congress.

2.      November 6, 2018: United States mid-term elections take place.

3.      November 30, 2018: The 90-day consultation period for the trade agreement will end.  The new USMCA agreement in principle “could” be signed by President Trump.

4.      January 3, 2019: Incoming new U.S. Congress.

5.      January 30, 2019: Last day for U.S. administration to submit a list of changes to U.S. law (60 days after signing).

6.      January/February 2019: Final agreement text submitted to Congress 30 days prior to implementing legislation.

7.      Mid-March 2019: Last day for the US International Trade Commission economic impact report of USMCA deal (105 days after signing).

8.      April 2019: Implementation bill introduced in House and Senate.

9.      April to July 2019: Bill is debated and considered in House and Senate committees before the final vote.

10.  Mid-July 2019: Senate votes on the USMCA implementation bill.

11.  July 2019: USMCA potentially signed into law by President Trump.

Trade has been front and center in farm and ranch country. USMCA is no exception. This trilateral agreement will have long-standing implications for the three key trading partners that are part of this newly negotiated deal.

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