The Trump administration remains adamant that Canada shut down its Class 7 milk pricing program as part of an overall deal to rewrite the North American Free Trade Agreement, USDA Secretary Sonny Perdue told reporters today.

Perdue's comments came as Canadian Minister of Foreign Affairs Chrystia Freeland and U.S. Trade Representative Robert Lighthizer kicked off a new round of negotiations in Washington in an 11th-hour effort to save the three-country trade pact. Talks broke down last Friday and one of the main sticking points was U.S. opposition to Canada’s Class 7 dairy policy, Perdue confirmed.

“The Class 7 has to go away,” Perdue said. “If you want a supply-management system for the dairy sector … we’re simply saying you need to manage the supply and not allow your producers to overproduce, which reduces the international price that our dairy people have to compete with …”

The Class 7 policy, which was introduced in February 2017, allows Canada to raise the floor price for milk and spur butter production. U.S. dairy farmers criticized the policy immediately because it also pushed down Canada’s domestic price for non-fat dairy solids and reduced demand for imports from the U.S. Canadian cheese-makers no longer wanted nearly as much ultrafiltered milk from the U.S.

Furthermore, Class 7 also encourages Canadian processors to overproduce non-fat solids like skim-milk powder that U.S. farmers say are saturating the international market.

Protecting dairy farmers is immensely popular in Canada and Freeland is likely averse to any change.

Freeland refused to comment directly on negotiations over Canada’s dairy policy in a press conference last week, but said: “The Canadian national interest and Canadian values are at the core of our negotiating approach and … priorities. The core Canadian positions are well known, I think, by everyone and certainly by our negotiating partners.”

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Still, Perdue stressed optimism today.

“I think we can resolve this,” he said. “I think Canada understands fundamentally that their Class 7 creation is not in the spirit of NAFTA and I think they’ll be willing to acknowledge that and we can get on with doing great trade with our neighbors to the north.”

Perdue also emphasized that he is hoping for successful talks that assure Canada will remain in NAFTA, but echoed President Donald Trump's recent threat that the U.S. was prepared to move forward with a new pact that includes only the U.S. and Mexico.

“It’s not absolutely necessary, as the president said, but we … want Canada to be part of (NAFTA),” Perdue said. “It’s just a matter of some tough issues that we’ve been vocal about all along.”

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