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USMCA Enters Into Force On July 1st, Including Elimination Of Canada’s Market-Distorting Supply Management Class 6 & 7 Pricing Programs; Class 6 & 7 Programs Currently Hinder NY Dairy Farmers From Fairly Selling Products Mere Miles North 

Senator Prioritized Elimination Of These Protectionist Pricing Programs And Increasing Market Access During Negotiations, Says Canada Is Obligated To Operate According To Deal

Schumer To Feds: Level The Playing Field And Help NY Dairy Farmers Churn Up & Milk Profits Before It’s Too “Lait”

After fiercely advocating for federal aid to New York’s dairy farmers in the beginning of the coronavirus (COVID-19) crisis, U.S. Senate Minority Leader Charles E. Schumer today urged United States Trade Representative Robert E. Lighthizer to quickly raise concerns about Canada evading its commitments under the United States-Mexico-Canada Agreement (USMCA) to eliminate harmful dairy trade practices, including Canada’s Class 7 pricing program (Class 6 in Ontario) and lack of transparency in milk-pricing regulations, with his Canadian government counterparts. Both were explicitly addressed in the agreement, which enters into force next week on July 1.

“New York’s dairy farmers are the lifeblood of the Upstate economy, but unfortunately, they have been squeezed by the economic effects of the COVID-19 crisis,” said Senator Schumer. “That is why I am calling on Ambassador Lighthizer to do everything in his power to ensure that Canada abides by its dairy trade obligations and eliminates its unfair and harmful pricing programs and practices that unfairly impeded Upstate New York dairy farmers from freely selling their product – as agreed to in the new trade agreement with Canada, the USMCA. As the trade deal enters into force next week, it is imperative that our New York dairy farmers are able to sell their products into Canada and churn up profits that mitigate the huge losses they have suffered this year.”

“USMCA requires Canada to provide new market access for American dairy products and to eliminate its destructive Classes 6 and 7 milk pricing schemes,” said Jaime Castaneda, Sr. Vice President for Policy Strategy and International Trade with the National Milk Producers Federation and the U.S. Dairy Export Council. “While not unexpected, Canada’s efforts to manipulate its agreed upon trade obligations to protect its tightly controlled dairy market are unacceptable. Canada needs to live up to the commitments it made to the U.S. on dairy. America’s dairy industry appreciates Senator Schumer for his leadership on this issue and we support Ambassador Lighthizer and Secretary Purdue as the U.S. works to hold Canada accountable to its commitments under USMCA.”

“Cayuga Milk Ingredients applauds the efforts of New York’s Senator Schumer for raising concerns over Canada’s recent request for dairy pricing secrecy within the Ontario Provincial Tribunal and their most recent administration of TRQ’s.  On both issues, Canada is showing they have no desire to act in good faith with respect to the trade commitments they made underneath USMCA.  Cayuga Milk Ingredients suffered a loss of nearly $24 million of sales in 2016 when Canada implemented a National Class 7 pricing scheme that was specifically and intentionally designed to stop the importation of ultra-filtered milk.  Based on these latest events, it appears Canada cannot be trusted to honor its trade commitments with the United States,” said Kevin J. Ellis, CEO Cayuga Milk Ingredients.

Craig Alexander, Sr. Director, Milk Planning and Regulatory Affairs at O-AT-KA Milk Products said, “A foundation principle of the new USMCA pertaining to Canada was transparency of pricing formulation and the elimination of its Class 7 pricing.  We appreciate Senator Schumer’s push for Canada to live up to its commitments in this agreement.  Canada should not obscure information on pricing now in order to artificially create a pricing environment that will keep us at a disadvantage once these USMCA provisions go into force.  Furthermore, Canada’s implementation of TRQs negotiated as part of USMCA and reserving increased access almost entirely to existing Canadian dairy companies is evidence that Canada has not changed its past history of circumventing trade agreements.  If Canada simply held up their end of the deal on eliminating Class 7 and fair implementation of TRQs, we could again get a fair shake at the opportunities to serve the Canadian market going forward.”             

Schumer explained that under USMCA, Canada agreed to eliminate Class 6 & 7 pricing within 6 months. However, the Senator revealed, Dairy Farmers of Ontario (DFO), which represents approximately 4,000 Canadian dairy farmers, has recently requested that Ontario’s tribunal which provides an avenue of appeal on agriculture issues grant restricted access to DFO’s pricing regulations. Schumer argued that with only a few days left until the USMCA is set to enter into force, the lack of transparency and timing of DFO’s request raises questions about whether or not Canada is seeking to circumvent its dairy commitments in USMCA.

Additionally, Schumer pointed out, under USMCA, Canada agreed to an expansion of tariff rate quotas (TRQs) for several categories of U.S. dairy products. However, the U.S. dairy industry has raised concerns that Canada’s recently-released TRQ allocations weaken the intent of USMCA and will prevent New York dairy farmers from fully benefiting from the agreement’s expanded market access opportunities.

Senator Schumer’s letter to USTR Lighthizer can be found here and appears below: 

Dear Ambassador Lighthizer:

I write to express concern about recent attempts from the Canadian dairy industry to obscure information about pricing regulations relating to the harmful Class 6 and 7 milk price classification programs. Given the imminent July 1 entry into force date for the United States-Mexico-Canada Agreement (USMCA), I urge you to ensure that Canada exercises transparency with its pricing regulations, as required by the agreement, and upholds its trade obligations to fully eliminate the Class 6 and 7 pricing programs and to provide the full measure of market access the U.S. secured via tariff-rate quotas under USMCA.

As you are aware, the elimination of Canada’s harmful dairy trade practices, including the market-distorting supply management Class 7 pricing program (Class 6 in Ontario), was a top priority of mine throughout the USMCA negotiations. These programs, along with other policies Canada enacted to limit dairy exports from the U.S., caused New York dairy farmers significant economic pain, which is only further exacerbated by the current COVID-19 crisis. While I did not vote for USMCA, I was encouraged to see the elimination of these programs secured as part of the overall agreement. My focus now remains on maintaining the full value of market access secured in USMCA for U.S. dairy products and ensuring the strong enforcement of Canada’s dairy trade commitments.

Under USMCA, Canada agreed to eliminate Class 6 and 7 pricing six months after the agreement enters into force. Products under Class 6 and 7 would then be reclassified according to their end use and subject to a price floor established in the agreement. Importantly, USMCA also imposes certain transparency requirements around pricing formulation, specifically requiring Canada to publish information on milk class pricing regulations, including any replacement or amendment of such regulations, as of July 1, 2020.

It was recently brought to my attention by the New York dairy industry that Dairy Farmers of Ontario (DFO), an organization that represents nearly 4,000 Canadian milk producers, has requested that the province’s Agriculture, Food and Rural Affairs Appeal Tribunal grant restricted access to DFO’s pricing regulations. It is my understanding that there is not a legitimate reason to withhold public disclosure of this information, particularly with less than one month until USMCA enters into force and Canada has an obligation under the agreement to do so.

Having access to precise information on the operation of Canada’s Class 6 and 7 programs is essential for the U.S. to ensure Canada does not circumvent the dairy provisions of USMCA. Details on DFO’s pricing regulations are relevant as they provide a baseline against which the U.S. can evaluate any new Canadian program or system that replaces Class 6 and 7. Further, DFO’s efforts to suppress this pricing information cast doubt on Canada’s overall commitment to fully eliminate these programs, as well as whether the country will refrain from reproducing the effects of the programs through different means in the future.

In addition to these reforms to Canada’s supply management system, under USMCA, Canada agreed to an expansion of tariff-rate quotas (TRQs) for U.S. exports of milk, cheese, yogurt, and several other categories of U.S. dairy products. However, it is my understanding that Canada’s recent allocation of its TRQs, released on June 15, weakens the intent and spirit of the agreement by hindering the ability of the New York and broader U.S. dairy industry to fully benefit from USMCA’s increased market access opportunities. 

We must ensure that hardworking dairy farmers in New York and across the country, who rely on strong trade enforcement from the U.S. government for protection against other countries’ unfair policies and practices, benefit from the changes in USMCA as intended. As such, I urge you to expeditiously raise these aforementioned concerns about Canada’s dairy obligations with your Canadian counterparts, and in particular, ensure Canada reaffirms its commitment that Class 6 and 7 will be fully, and permanently, eliminated.  

Thank you for your attention to this critical matter, and I look forward to your response.