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U.S. agriculture chief calls for end of Class 7 milk

Trump is talking tough, saying Canada has been ‘ripping us off’ for a long time

Canada must end its low-price milk proteins policy to reach a U.S.-Canadian deal to update the North American Free Trade Agreement, U.S. Agriculture Secretary Sonny Perdue said Sept. 9.

Canada has encouraged overproduction and flooded export markets for milk proteins used in cheese and yogurt, hurting U.S. dairy farmers, Perdue said in an interview aired that Sunday on C-SPAN television.

“Our farmers don’t have access to the Canadian markets the way that they have access to us. Class 7 has to go. It can’t be renamed something or called something else,” Perdue said when asked about dairy concessions needed to reach a NAFTA deal, referring to a new milk class created last year by Canada to price milk ingredients such as protein concentrates, skim milk and whole milk powder.

“It allowed them to export milk solids on the world market and below prices that cut into our opportunity for our dairy people to have access to that world market,” Perdue said.

Canada’s closed, $21-billion dairy market is among the last sticking points in talks between U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland, which broke up on Friday without a deal.

Talks are expected to resume after Lighthizer travels to Brussels for trade talks with European Union Trade Commissioner Cecilia Malmstrom on Monday.

A spokesman for Freeland could not immediately be reached for comment on Perdue’s remarks.

However, on Friday Freeland said she and her U.S. counterpart were making “very good progress” in talks to save the North American Free Trade Agreement amid increasing Canadian optimism that a deal could be reached, even if a conclusion did not appear imminent.

She again termed negotiations constructive, as she spoke to reporters after a meeting in Washington with U.S. Trade Representative Robert Lighthizer.

“We are certainly making very good progress at understanding each other, understanding what each side needs,” Freeland said.

White House economic adviser Larry Kudlow last week said milk was the main issue standing in the way of a NAFTA deal.

In an interview with Global News also published September 9, Freeland declined to discuss specific issues in the talks and noted that Kudlow is “not at the negotiating table.” Freeland added that to achieve a NAFTA deal, “It’s going to take flexibility on all sides.”

Freeland said Sept. 7 she and Lighthizer were making “very good progress” in talks to save NAFTA amid increasing Canadian optimism that a deal can be reached. President Donald Trump has struck a trade deal with Mexico and threatened to push ahead without Canada, a move that would kill NAFTA, which covers $1.2 trillion in trade between the three countries, and further spook financial markets.

Perdue said on C-SPAN that Lighthizer has been “very clear” about the need for the Class 7 pricing system to be repealed.

Asked if it would be gone from a NAFTA deal, he said, “I think it should be. I think it will be gone.”

In April 2017, Trump nearly withdrew from NAFTA after becoming angered by the plight of Wisconsin dairy farmers whose milk protein exports to Canada had been cut off by the Class 7 pricing scheme. Trump decided to renegotiate NAFTA instead.

Other sticking points include Ottawa’s desire to keep the 1994 pact’s Chapter 19 dispute resolution mechanism, and Canadian media laws that favour domestically produced content.

“I’m working on Canada now,” Trump told reporters aboard Air Force One. “You know, people can say, ‘Oh I’m too tough on Canada.’ Look, Canada’s been ripping us off for a long time. And now it’s got to treat us fairly.”

A Canadian source, who declined to be named given the sensitivity of the situation, said Canadian negotiators thought it was quite possible the talks would continue until the end of this month.

A U.S. official told Reuters September 6 that Canada needed to move further on dairy. In its recent trade deal with the European Union, Canada made concessions on dairy imports and it offered some increased access to that market as part of the Trans-Pacific Partnership, which the United States abandoned.

“We’re down to three issues: Chapter 19, the cultural issues and dairy. We’ve created leverage and driven Canada to the table,” the U.S. official said. “Part of our problem is that Canada has been backsliding on its commitments (on dairy).”

Trump has targeted what he sees as “unfair” trade as part of his “America First” agenda to boost U.S. manufacturing and jobs, imposing tariffs on trading partners, including Canada, China, the EU and Mexico. That has prompted retaliation.

Tens of billions of dollars in Chinese imports have been slapped with U.S. tariffs and a new round of duties is due to be triggered soon.

Both Canada and Mexico want Trump to agree to permanently exempt them from U.S. tariffs on steel and aluminum imports. Washington has used those tariffs as leverage in the NAFTA talks.

For its part, Canada has used the provisions of NAFTA’s dispute resolution mechanism to defend its lumber exports to the United States. Washington charges that Canadian lumber unfairly undercuts prices on U.S. lumber.

Trump has notified Congress he intends to sign the trade deal reached last week with Mexico by the end of November, and officials said the text would be published by around Oct. 1.

Despite pressure from Washington to sign on to a deal similar to the one agreed with Mexico, Ottawa has resisted. Canadian officials also are aware that U.S. business and labour groups are pushing Trump to keep NAFTA as a trilateral deal.

Negotiators have blown through several deadlines since the talks started in August 2017. As the process grinds on, some in Washington insist Trump cannot pull out of NAFTA without the approval of Congress.

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