A conversation with…
Tom Vilsack — Former U.S. Ag Secretary and president, CEO of U.S. Dairy Export Council on USMCA
Interview with Joel Penhorwood
OCJ: What is your take on the new NAFTA, the US-Mexico-Canada Agreement (USMCA)?
Tom: I think it’s good news from the perspective that we now know that there is likely to be a tri-lateral relationship between Mexico, Canada, and the United States. I think there was some uncertainty as to whether or not the U.S. would either leave NAFTA or whether they would simply provide an agreement with Mexico and leave Canada out. I think now we know that we’re going to have a trilateral agreement which should stabilize and strengthen our dairy markets. We now know we’re going to be able to preserve that Mexican market, which is incredibly important to the dairy industry — our No. 1 market — with potential opportunities for additional access to the Canadian market.
The second thing is, as a result of the completion of these negotiations the United States Trade Representative’s office, Ambassador Lighthizer and his team will now be freed up to hopefully begin negotiations to with the Chinese to get that matter resolved expeditiously. And, perhaps they will begin to more aggressively pursue bilateral trade negotiations with Japan and the U.K. and the E.U. and other nations, maybe even work on removing the retaliatory tariffs that still exist with Mexico and Canada as a result of the steel and aluminum tariffs that were assessed by the U.S. That has provided a drag on our cheese sales in Mexico — we would like to see that removed.
The agreement itself preserves the Mexican market, but it also provides I think incremental increase in the Canadian market. The elimination of class 7 was certainly good news, but we want to see how it’s going to be implemented, and certainly the market access as well — not a tremendous open market access, but certainly more than we’ve had before.
The idea of modernizing NAFTA certainly made sense given the fact it was over 20 years old and there were certainly new industries that had cropped up in the last 20 years and needed to be addressed. I think this was a good opportunity and certainly appreciate the fact that the administration took advantage of it.
OCJ: Are tariffs the best way to go about things?
Tom: I think the fact that we mixed up tariffs with steel and aluminum obviously has created a hiccup. We obviously have, as I said, retaliatory tariffs between Mexico and Canada on some of our dairy products, which has inhibited trade a bit. It would be great if we could see those removed. Certainly tariffs have caused significant challenge with our Chinese market. We have had powder sales virtually stop in China at a time when we’re looking to try to strengthen prices, which makes things a little more difficult for our dairy producers. I think some of our higher value products are still being sold in China, but the folks are absorbing the tariffs. They’ll only be able to do that for a short period of time. That’s why it’s important for the administration to get back to the table with the Chinese and hammer out some kind of understanding so we have a fair and balanced relationship with them.
OCJ: What’s on the horizon for dairy exports?
Tom: At this point, dairy exports are sort of an untold story this year. The first seven, eight months of this year, we’ve seen exports at a record pace. We’ve never been able to sell as much dairy to the rest of the world as we’re selling today. Hopefully that continues. We’re seeing market opportunities in the Middle East and north Africa and southeast Asia — in Korea, and Japan. I just got back from a visit to both China and Korea where I see tremendous opportunity in the Korean market. There are opportunities potentially in Australia, which may surprise some folks, and of course an opportunity as well in Mexico to continue to expand that market and some in Central and South America, and Caribbean islands.
There’s really global opportunity here. We’re seeing demand for dairy grow. As populations increase, as middle classes grow with the growing world economy, it plays to the strength of dairy protein. We see health and wellness now becoming an issue for so many developed countries with aging populations and dairy’s role in providing better health and fitness. All of it I think speaks to the possibilities for expanded exports and hopefully that translates over time into better prices for our farmers.
OCJ: How does USMCA impact Canada’s isolationist policies?
Joel: The supply management system is still intact and will still be utilized in Canada. When we eliminated class seven, essentially it’s going to be replaced with a new pricing system that’s tied to our class four milk. However, there’s an adjustment that the Canadians can make based upon applicable Canadian allowances. The fact that it’s the applicable allowance raises some concerns. We’re not certain that’s a set amount. We’re not certain that’s necessarily pegged to the U.S. make allowance and so that raises concerns about how the removal of class seven is actually going to be implemented. Will it create additional advantages for the Canadians? Or will it provide a fair system? That is yet to be determined.
The same thing is true with market access. While the numbers are better than the Trans-Pacific Partnership negotiated and the fact that we won’t have to share those quotas with any other nation certainly appear to be a plus. However, it spreads a little bit differently over product lines, so again we’re going to have to see precisely what this means over time.
OCJ: Any timeline on that implementation?
Tom: This is an agreement that is going to be essentially phased in over a period of years. The first step of the process obviously is the president to sign the agreement, which he no doubt will do before Nov. 30 so that the outgoing Mexican president can sign it. Then once it’s signed, Congress has roughly 60 days to sort of review the details and then at that point, Congress can take the matter up for a vote. I think there’s obviously going to be lot of discussion about whether or not there are sufficient votes and that’s why it’s going to be important to understand the details of the agreement, which obviously everyone will be interested in.