An agreement on agricultural trade under a renegotiated North American Free Trade Agreement (NAFTA) is possible without gutting dairy supply management, says Mike Gifford, Canada’s former chief agricultural trade negotiator.
The United States is Canadian agriculture’s biggest customer generating more than $50 billion in annual revenues. Terminating NAFTA, as U.S. President Donald Trump threatens to do, would be a shock, but overall not “particularly severe,” Gifford, who retired from the federal government in 2000, but still consults on trade, told the annual Fields on Wheels conference Dec. 15 in Winnipeg.
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That’s because Gifford expects the Canada-U.S. Trade Agreement (CUSTA) to kick in. It predates NAFTA and has the same agricultural trade rules.
“So basically there would be no impact on Canadian agriculture for all intents and purposes,” Gifford said. “We revert basically to the status quo, not something worse than the status quo.”
Moreover, it’s likely Canada and Mexico would continue to operate under NAFTA, giving Canada preference to the Mexican market over the U.S., he said.
There’s no guarantee the U.S. won’t withdraw from CUSTA, but Gifford thinks it won’t, given the U.S. focus on getting concessions from Mexico.
In the absence of NAFTA and CUSTA World Trade Organization rules, with most favoured nation tariffs, would apply.
The Canadian dollar would weaken, adding to Canadian export competitiveness, he said.
“For most (agricultural) sectors it is not going to be particularly severe because our tariffs are relatively low under the WTO and the same for the U.S.,” Gifford said. “But there are going to be some sectors and some products that are going to be adversely affected because they are a tariff peak.”
Exports of fresh Canadian mushrooms would face American tariffs of more than 30 per cent, Gifford said. Canadian processing potatoes exports to the U.S. would also suffer.
“Cattle, hogs and pork basically wouldn’t see much change in their treatment going into the U.S. because cattle and hogs are free (of duties) and (duties) on most pork products are relatively low,” Gifford said. “Pork carcasses I think are free.”
However, beef trade could be a problem due to tariffs, but since there’s now two-way trade both countries have an incentive to work out a deal, he said.
“I’ve got to stress the bulk of the Canadian and U.S. tariffs are something in the order of four per cent,” Gifford said. “They are not high. But there are examples in both countries where we’ve got tariff peaks both countries will have problems with.”
Canada exports four million tonnes of wheat to the U.S., but overall Western Canada’s grain customer base is diversified, Gifford said.
“I would argue western Canadian agriculture today is far better able to adjust to the shock of the termination of NAFTA and the Canada-U.S. Free Trade Agreement because of what’s happened in the interim,” he said. “We have become a lot more efficient since those negotiations concluded. Whether it is in the red meat-processing sector or whether it is in the oilseed-processing sector, we have become world scale… it’s certainly not as bad as if we had not made changes over the last years. Clearly, there is no question that the preferred outcome in the NAFTA renegotiation is to basically do no harm and add some improvements where we can.”
While the Americans are pushing to end supply management, especially for dairy production, the U.S. is equally committed to protecting its sugar industry, Gifford said. What American dairy farmers really want is more access to Canada’s market and more secured access following recent Canadian rule changes that blocked imports of U.S. milk protein isolate.
Tariff rate quotas are the solution, he said. They allow a fixed volume of imports, followed by higher tariffs to block further imports.
Canadian milk production accounts for 90 per cent of the domestic market, Gifford said. The market has been growing so Canadian farmers can allow more American milk in, he said.
“There are solutions to this short of destroying supply management,” Gifford said.
Canadian supply management is valued at about $40 billion, which makes getting rid of it difficult, he later told reporters (see sidebar).
Canada also wants more secured access to the U.S. cattle, beef, hog and pork markets, Gifford said. It doesn’t want country-of-origin labelling (COOL) to return.
Gifford declined to speculate on the outcome of the NAFTA talks. Trump isn’t the only wild card either. These negotiations are unique in that agriculture is not “front and centre,” he said.
“It’s not the issue that’s going to dominate the negotiation throughout.”
The main issues are rules of origin, especially around autos and parts, dispute settlement, buy American provisions, and a clause to end NAFTA after five years unless signatories take action to continue it, he said.