Pros and Cons of TPP for U.S. Dairy Industry

If we had to give the Trans-Pacific Partnership a grade, it would not get an “A” nor would it get an “F”.  

Editor's Note: The following is adapted from USDEC President Tom Suber's prepared written comments for testimony given today before the United States International Trade Commission. 

TPP for dairy is unique among U.S. free trade agreements in that it includes two of our largest dairy competitors (New Zealand and Australia) as well as three of our largest foreign markets (Mexico, Japan and Canada).

Despite ranking among our top six global dairy markets, Japan and Canada maintain exceptionally high tariffs on imports. In fact, TPP only became a sizable access opportunity for the U.S. dairy industry when these two markets were introduced into the mix.

The world dairy export market is extremely competitive due to its small number of major suppliers and limited global trade in comparison with total dairy consumption. In light of this, we determined early during TPP talks that substantial new dairy access gains were fundamentally vital to avoid an overall negative outcome for our sector.

Reflecting the reality that the United States has become a major exporter in the last decade, while also remaining one of the dairy world’s largest importers, we were seeking an agreement that significantly expanded export opportunities. We were not willing to accept a result that opened our market to our major competitors if at the same time other dairy markets in TPP were permitted to largely block meaningful new access to our dairy products. Such an outcome would not only fail to permit new export growth for us, but would make the U.S. the market of choice for our competitors, a situation which we felt would not have otherwise been the case.

Based on our ongoing review of the terms of the agreement, it appears that our industry avoided the type of disproportionate one-way street outcome about which we were so deeply concerned. At the same time, we remain troubled by the lost opportunity to significantly pry open the long-sheltered dairy markets in Japan and Canada.

In short, if we were to give the result a grade, it does not deserve an A, nor would it receive an F. However, we are still working to determine which grade in between it deserves.

Despite not yet completing our own analysis of TPP’s dairy impacts, USDEC believed it was important to participate in this hearing in order to assist the USITC in its TPA-mandated analysis of the results of the agreement.

The comments in our written submission are aimed at providing input regarding various aspects of the agreement important to our sector, as well as highlighting areas that we believe should not be overlooked as the USITC conducts its economic analysis of the agreement. I will briefly summarize these now.

The two most important non-tariff achievements of this agreement are its sanitary and phytosanitary chapter and the intellectual property chapter’s provisions on geographical indications.

USDEC helped spearhead the effort to obtain “WTO-plus” SPS provisions within the TPP. Our goal in doing so was to strengthen the existing WTO SPS commitments in order to address the escalating threat that unwarranted and sudden SPS measures were beginning to pose to U.S. agricultural exports around the world.

Improvements were achieved in the areas of science and risk analysis, equivalence, import checks, transparency and in the establishment of Cooperative Technical Consultations. TPP is the first U.S. trade agreement to include rules and disciplines on SPS measures that go beyond those contained in the WTO SPS Agreement. That makes the strength of this chapter and the fact that nearly all of its “WTO-plus” provisions are enforceable through the TPP’s dispute settlement mechanism particularly notable.

In another important area, the TPP’s innovative GI provisions establish a more equitable international model for approaching the issue of GI registrations. The new commitments prioritize the need for clarity, transparency, due process and the critical importance of weighing generic usage of a term. This contrasts strongly with the existing EU-driven model of GI commitments that has focused on establishing an overly broad and vague scope of protection for GIs while giving short shrift to the concerns of other stakeholders during the GI registration process. The U.S. Trade Representative’s complementary work to secure side letters with several TPP parties involved in trade negotiations with the EU should help to guard against the further erection of inappropriate GI barriers to U.S. exports.

The due process improvements in both areas represent notable accomplishments of which the U.S. should rightfully be proud. They are not perfect―as hard-fought new language on trade commitments rarely is―but they are key advances compared to the current situation where the potential for the abrupt imposition of unjustified SPS and GI barriers to trade remains a deep concern. These achievements may be difficult to quantify through traditional economic modeling, but are certainly relevant to the economics gains the U.S. may hope to achieve through TPP.

As I mentioned, our economic analysis of the agreement remains underway. One reason is that USDEC and NMPF continue to pursue certain implementation issues with the Administration. The results of those discussions could affect our final assessment of TPP’s impact on dairy.

We have, however, identified a number of factors that are relevant to any such assessment, which we urge the USITC to take into account in addition to its analysis of the impact that new export access will have for the U.S. dairy sector. These are described in detail in our written submission, but I will simply list them here.

An evaluation of the impact of TPP on the U.S. dairy sector should include:

• The impact, both economic and precedential, of U.S. dairy tariff elimination granted to Japan despite a lack of reciprocal open access to Japan’s dairy market.
• The impacts on U.S. sales in existing FTA partner markets, such as Mexico and Peru.
• The impact of U.S. tariff elimination on milk powders granted to New Zealand & Australia.
• The impact of U.S. tariff elimination on specific cheese TRQs granted to Canada, New Zealand & Australia.
• The level of dairy exports to the U.S. expected from Canada.
• The impact on U.S. exports in light of TPP-region competition from NZ and Australia.
• The degree of flexibility created by the agreement’s rules of origin.
• The impact on TPP results given the likelihood of EU FTAs in the TPP region.
• The likelihood of intentionally obstructive regulatory barriers arising; and, finally.
• The use of new TPP dairy safeguard provisions by the U.S.

We have also offered some ideas in our written submission with respect to the all-important structure of the economic analysis that the USITC will employ, which I will not go into here. I will only say that modeling in the dairy sector is exceedingly complicated because of its multifaceted nature. We stand ready to work with USITC analysts following today’s hearing to discuss these recommendations and to assist in their efforts.

Blog readers, learn more. Additional resources pertaining to TPP include:

• News Release (1/14/16): Dairy Industry Voices Pros and Cons of TPP in Front of U.S. International Trade Commission
• Full, written commentary submitted to the U.S.International Trade Commission on December 22, 2015, by USDEC and NMPF

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.