Agricultural Provisions of the U.S.-Mexico-Canada Agreement

Agricultural Provisions of the U.S.-Mexico-Canada Agreement

October 5, 2018
Agricultural Provisions of the U.S.-Mexico-Canada Agreement
On September 30, 2018, the Trump Administration
are set at zero, but over-quota tariffs can be as high as
announced an agreement with Canada and Mexico to
313.5%. Under USMCA, Canada would maintain its supply
replace the North American Free Trade Agreement
management system, but USMCA would expand TRQs that
(NAFTA) with the United States-Mexico-Canada
increase each year for U.S. exports of milk, cheese, cream,
Agreement (USMCA). USMCA, if finalized, will allow
skim milk powder, condensed milk, yogurt, and several
food and agriculture products to “trade more fairly,”
other dairy categories. In addition, USMCA includes
according to the U.S. Trade Representative, and will
broader provisions on transparency for the implementation
expand exports of U.S. agricultural goods. While USMCA
of TRQs, such as requirements for advanced notice of
includes provisions that address many sectors, this report
changes to the quotas and making publicly available details
summarizes the agriculture and sanitary and phytosanitary
on quota utilization rates.
(SPS) provisions of the agreement. The President is
expected to sign USMCA on November 30, 2018, before
Canada has further agreed to changes in its milk pricing
sending the agreement and implementing legislation to
system that has set low prices for Canadian skim milk
Congress for approval. It must also be approved by the
solids, undercutting U.S. exports. Six months after USMCA
governments of Canada and Mexico.
goes into effect, Canada will eliminate its Class 7 milk
price (which includes skim milk solids, Class 6 in Ontario)
Canada and Mexico were the first- and third-leading export
and will set its price for skim milk solids based on a
markets for U.S. agriculture and food products by value in
formula that takes into account the U.S. nonfat dry milk
2017, worth $20.6 billion and $18.6 billion, respectively.
price, among other factors. Both the United States and
Since NAFTA was signed in 1993—which eliminated most
Canada will need to notify each other in the future if either
tariffs on agricultural goods sold among the three
introduces or changes a milk class price. Canada has further
countries—the value of U.S. agricultural trade with its
agreed to cap its skim milk powder and milk protein
NAFTA partners has increased. Agricultural exports rose
concentrate exports. USMCA also includes a requirement
from $8.7 billion in 1992 to $39 billion in 2017, while
that the United States and Canada meet five years after the
imports rose from $6.5 billion to $47 billion over the same
implementation of the agreement—and every two years
time period. There has been a trade deficit for agricultural
after that—to determine whether to modify the dairy
products since 2014, including an $8 billion trade deficit in
provisions of the agreement.
2017 that is the largest deficit since NAFTA was signed.
U.S. Poultry Access to Canada
Figure 1. U.S.-NAFTA Agricultural Trade, 1992-2017
USMCA increases the TRQs for U.S. poultry and egg
exports to Canada. Much like the rules governing its dairy
sector, Canada has a supply management system for
chicken, egg, and turkey production and has allowed only a
small amount of those products to be imported duty free.
Under the agreement, the duty-free quotas for chicken starts
at 47,000 tons, expands to 57,000 tons in year six, and then
continues at a growth rate of 1% per year for the 10 years
after that. Eggs would have a new TRQ of 10 million dozen
annually, while the annual TRQ for turkey and broiler
hatching eggs and chicks would be set by formulas based
on Canadian production.
Canadian Grain Policy Changes
Under USMCA, Canada will revise its grain grading
policies to treat U.S. wheat in a way that is “no less
favorable than that it accords to like wheat of national
Source: CRS from USDA, Global Agricultural Trading System. Data
origin.” Canadian inspection certificates for wheat currently
are not adjusted for inflation.
do not allow for a grade, so U.S. exports cannot receive
Canadian Dairy Policy Changes
premium prices that would come with a higher grade.
USMCA provides that neither the United States nor Canada
Under USMCA, Canada has agreed to reduce certain
are allowed to have country of origin on wheat quality
barriers for U.S. dairy exports, a key demand of U.S. dairy
certificates for wheat from either country.
groups. Canada restricts U.S. dairy exports through tariff-
rate quotas (TRQs) with high over-quota tariffs. Currently,
most of the in-quota tariffs for U.S. dairy exports to Canada
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Agricultural Provisions of the U.S.-Mexico-Canada Agreement
Sanitary and Phytosanitary Provisions
GIs are intended to protect the quality and reputation of a
SPS measures are the laws, rules, standards, and procedures
distinctive product originating in certain regions. USMCA
that governments employ to protect humans, animals, and
protects the GIs for food products that Canada and Mexico
plants from diseases, pests, toxins, and other contaminants.
have already agreed to in trade negotiations with the
USMCA’s SPS chapter calls for greater transparency in
European Union (EU) but lays out transparency and
SPS rules and regulatory alignment among the three
notification requirements for any new GIs that a country
countries. Under the agreement, countries must base their
wants to recognize. The agreement also details a process for
SPS rules on “relevant scientific principles” and eliminate
determining whether a food name is common or should be
those rules that no longer have a scientific basis. While
protected. In a side letter accompanying the agreement,
USMCA commits the United States, Mexico, and Canada to
Mexico confirmed a list of 33 terms for cheese that would
seek alignment and equivalence in their SPS regulations, it
remain available as common names for U.S. cheese
also requires them to notify and give opportunity to
producers exporting to Mexico. The list includes some
comment on any additions or changes to SPS rules.
terms that are protected as GIs by the EU, such as Edam,
USMCA further lays out requirements for notifying
Gouda, and Brie.
exporting countries when an issue arises with a shipment
and the exchange of information on SPS issues, and it
USMCA protects certain U.S., Canadian, and Mexican
maintains a trilateral Committee on Sanitary and
spirits as distinctive products. Under the agreement,
Phytosanitary Measures to address issues as they arise.
products labeled as Bourbon Whiskey and Tennessee
Whiskey must originate in the United States. Similar
Biotechnology Provisions
protections exist for Canadian Whiskey and Tequila and
The agriculture chapter of USMCA lays out protections and
Mezcal, which must be produced in Mexico. In a side letter
coordination on agricultural biotechnology, an issue that is
accompanying the agreement, the United States and Mexico
not addressed in NAFTA. USMCA requires the United
further agreed to protect American Rye Whiskey,
States, Mexico, and Canada to make publicly available the
Charanda, Sotol, and Bacanora.
details on the approval process for crops produced with
biotechnology, encourage producers to submit concurrent
Protections for Proprietary Formulas
applications for approval, and ensure that decisions on
USMCA includes protections for proprietary formulas for
those applications are made in a timely manner. Further,
prepackaged foods and food additives that limit the
when an import into a member country is found to have a
information countries subject to the agreement can ask for
low level presence of an unapproved crop produced with
from food companies looking to export. Countries can ask
biotechnology, the importing country is to act quickly so as
only for information that is necessary to “achieve its
to not unnecessarily delay the shipment. USMCA also
legitimate objective” and must protect the confidential
creates a Working Group for Cooperation on Agricultural
information of products from another country as it would
Biotechnology to help with information exchange and
for domestic products.
advance “transparent, science and risk-based regulatory
approaches” and policies in other countries and
U.S. Imports of Canadian Sugar, Dairy,
international organizations. The provisions of USMCA
Peanuts, and Cotton
apply to crops produced with conventional biotechnology
The United States has agreed to allow more access for
methods, including recombinant DNA and gene editing.
Canadian producers of dairy, sugar, peanuts and cotton.
Under USMCA, the United States will increase TRQs on
Beer, Wine, and Spirits Labeling, Sales
imports of Canadian dairy products and sugar and
Canada allows its provinces to control the sale of beer,
sweetened products. The agreement details the phase-out
wine, and spirits, a system that in some cases has disrupted
period for U.S. tariffs on cotton and peanut imports from
market access for U.S. products with barriers such as higher
Canada, which will be eliminated five years after the
prices for imported products. USMCA requires that each
agreement takes effect. U.S. imports of peanut products—
country have the same treatment for distributing another
including shelled and unshelled peanuts and peanut
country’s spirits, wine, beer, and other alcoholic beverages
butter—from Canada are currently subject to a 131.8%
as it would its own products. It also sets rules governing
tariff.
listing requirements for a product to be sold in a given
country and sets limits on cost markups of alcoholic
Agricultural Trade Issues Not Addressed
beverages from other countries. In a side letter to the
While USMCA addresses several issues that have restricted
agreement, Canada also agreed to have British Columbia
U.S. agricultural exports to Mexico and Canada, it does not
remove its limitations on sales of non–British Columbian
include all of the changes sought by U.S. agricultural
wines in grocery stores by November 1, 2019. The
groups. The agreement does not include changes to trade
agreement further includes rules to promote transparency
remedy laws to address seasonal produce as requested by
and harmonization of labeling for wine and spirits
Southeastern U.S. produce growers. It also does not address
beverages among the three countries and prevent labeling
non-tariff barriers to market access for U.S. fresh potatoes
from acting as a barrier to trade.
in Canada and Mexico. Finally the agreement does not
address a resolution for retaliatory tariffs on U.S.
Geographical Indications and Distinctive
agricultural exports to those countries.
Products
Geographical indications (GIs) are place names used to
Jenny Hopkinson, Analyst in Agricultural Policy
identify products that come from certain regions or places.
IF10996
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Agricultural Provisions of the U.S.-Mexico-Canada Agreement

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