The U.S. Dairy Exporter Blog: Market Analysis, Research & News

  • Enforcement Critical to Ensure Free Trade Agreements Deliver on Promises

    By Tom Suber September 28, 2016

    The United States takes aim at a Canadian pattern of evading trade commitments vital to the U.S. dairy industry. 

    Finalizing a free trade agreement (FTA) is a substantial accomplishment. But improper enforcement of an FTA’s provisions can undermine the gains made during what tend to be lengthy and laborious negotiations.

    free_trade.jpgIt is often necessary to work just as hard to ensure market access terms are not subsequently diluted—or even violated entirely—by governments under pressure to keep imports at bay.

    Using a blueprint proven to yield results with previous FTAs, that work is underway for the pending Trans-Pacific Partnership (TPP) agreement. But the road ahead is difficult.

    The U.S. dairy industry, including the U.S. Dairy Export Council, has repeatedly called for assurances that TPP will be stringently enforced. There are two very good reasons why we have been so assertive in our appeals for enforcement assurances:

    1. Experience has shown that the greatest windows of opportunity for influencing how countries implement their trade obligations are during the period prior to congressional approval of an FTA and prior to the FTA’s actual implementation following congressional approval.
    2. One of the main players in TPP—Canada—has demonstrated a pervasive and deeply problematic pattern of actively seeking to thwart dairy trade obligations by enacting a variety of trade impediments aimed specifically at eroding market access. Canada is unique among TPP participants in its habitual abuse of negotiated rules of trade.

    Frequent offender

    Canada is a frequent repeat offender when it comes to erecting dairy trade barriers. For example, Canada altered its cheese standards to restrict ingredient imports in 2007, passed a law to block food preparations containing mozzarella in 2013 and created a new Class Six pricing program in Ontario in 2016, specifically to displace imports.

    Canada1-558683-edited.jpgThis year, Canada plans to roll out a new National Ingredients Strategy that
    effectively nationalizes the Ontario pricing program and takes further steps to more broadly impact Canadian dairy ingredient imports, as well as global trade in
     skim milk powder. U.S. dairy suppliers report they are already losing business because of the Class Six system, so an expanded version of that policy would be deeply problematic for trade.

    Canada has consistently chipped away at the value of U.S. dairy market access through these and other regulatory changes aimed at limiting dairy imports.

    With TPP awaiting congressional consideration, it is critically important to ensure that the country breaks this pattern and abides by its TPP commitments. History has shown a concerted proactive approach to FTA enforcement by the U.S. government, backed by industry, has proven effective.

    For the U.S.-South Korea FTA, for example, the U.S. Trade Representative (USTR) engaged extensively with Korea on geographical indication issues prior to approval of the FTA, ultimately securing a letter clearly safeguarding usage of several generic terms important to the U.S. dairy industry. In addition, the U.S. Department of Agriculture’s Foreign Agricultural Service and USTR worked extensively to ensure that early problems related to tariff rate quota administration and burdensome Certificate of Origin requirements did not limit negotiated access.

    The U.S. government and Congress have come out strongly to defend U.S. dairy access to Canada in this case as well. The administration has engaged in extensive discussions with Canada about its policies throughout this year. Earlier this year, approximately four dozen House members spotlighted a number of priority TPP dairy compliance issues in a letter to USTR and USDA. Canada’s adherence to dairy trade commitments was first and foremost on that list.

    Most recently, the U.S. Senate called on USTR Michael Froman and Agriculture Secretary Tom Vilsack to investigate whether Canada’s proposed National Ingredients Strategy and the existing Ontario Class Six pricing program are in keeping with the nation’s trade commitments. The legislators expressed extreme concern that both programs represent a continuation of persistent Canadian regulatory and policy changes aimed directly at impeding dairy trade.

    Shortly after the Senate appeal, the dairy industries of Australia, the European Union, Mexico, New Zealand and the United States jointly contacted their respective government officials urging them to initiate a World Trade Organization (WTO) dispute settlement proceeding to challenge Canada’s dairy ingredient pricing plan (once the nation officially ratifies the scheme, which is expected this fall).

    Enforcement options

    There are a variety of enforcement strategies to address nations that fail to abide by FTA market access provisions. Challenges at the WTO level or within the framework of an FTA itself are considered “hard” penalties—defined dispute settlement procedures resulting in an unambiguous directive.

    “Soft” penalties focus more on relationship capital. Good relations between an agreement’s parties are an important element of a smoothly-functioning pact, since U.S. partners recognize that they too are likely to have issues arising under the agreement and will want to see responsive U.S. actions in turn.

    There is also a vitally important pre-penalty course, and it is this path that may fit the circumstances with Canada best. The U.S. government must certify compliance with FTA provisions before enacting an FTA. If a country continues to willfully persist in flouting its trade obligations to the United States—as Canada has done on dairy—the U.S. government could refuse to certify that country and as such delay extending the benefits of the agreement to them until they come into compliance. Refusal to extend TPP certification to Canada would not impact U.S. activation of the agreement with other countries and therefore provides a targeted response to a uniquely Canadian problem.

    Each FTA situation is different and countries vary in how they approach their trade obligations. Mexico, for example, has been a reliable and responsive FTA partner, much less likely to use back-door methods to negate its commitments.

    Mexico is our best foreign dairy market and its industry is also a strong ally on a number of issues. But that didn’t happen accidentally. The U.S-Mexico dairy trade relationship is the result of considerable persistent work by both countries to listen and react to each other’s concerns.

    Assuring Canada complies with its trade commitments will require even greater persistence given its ongoing procession of policy tools aimed at curtailing dairy imports. Active enforcement is vital to ensuring the deal’s benefits are more than just words on paper.

    Tom Suber is the president of the U.S. Dairy Export Council. 

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    The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.    

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