Trump administration declines USMCA renewal; dairy industry weighs in

The Trump administration will not renew the U.S.-Mexico-Canada agreement in its current form, U.S. Trade Representative Jamieson Greer announced Wednesday. The agreement has been a boon to farm country, but lawmakers and the dairy industry say there's room for improvement.

Regardless of the decision, the USMCA will remain in place for another decade or until the three countries come to an agreement. Further negotiations will allow the U.S. to go head-to-head with Canada over its dairy pricing system. Any changes to existing tariff rate quotas will require congressional approval.

“The United States will continue to engage with Mexico and Canada to address the agreement’s shortcomings and our trade deficits with these countries,” Greer said in a statement after the countries virtually met on Wednesday. 

House Ways and Means Trade Subcommittee Chairman Adrian Smith, R-Neb., echoed that sentiment in a press release.

"Since its creation, USMCA has been the gold standard for modern trade agreements, delivering meaningful benefits to the United States and our North American partners. But any agreement is only as strong as its enforcement. Unfortunately, over the past six years, our trading partners have repeatedly failed to fully uphold their commitments,” Smith said.

He noted that President Donald Trump’s decision not to renew is not a termination, instead it's an “opportunity to strengthen enforcement, so the agreement functions as intended.”

Sen. Chuck Grassley, R-Iowa, however, cautioned against not extending the USMCA.

“So, I think that it would be a big, big mistake for the president to do that,” Grassley said on his weekly press call Wednesday with agriculture reporters. The USMCA will be negotiated every year until July 1, 2036, until it’s renewed.

The trilateral agreement allows USMCA-compliant products to be exported duty-free. Mexico and Canada are the United States' top two trading partners, according to the Census Bureau's April report, with Mexico accounting for nearly 17% of all US trade and Canada trailing at about 13%.

A Purdue University study found that tariffs could rise an average of 7.4% above current levels within 10 years if the agreement is eliminated. 

The USMCA isn’t free of disputes. One of the so-called “shortcomings” pertains to a provision of the USMCA that directs Canada to provide new and expanded access for US exports of milk, cheese, cream, skim milk powder, condensed milk and yogurt through a tariff-rate quota allocation.

The dairy industry says Canada has not fulfilled its obligations, necessitating additional negotiations. Shawna Morris, the National Milk Producers Federation’s executive vice president for trade policy and global affairs, said the decision not to renew didn’t come as a surprise. Morris also represents the U.S. Dairy Export Council (USDEC).

“I think it's been clear for quite a while now that there are issues that the U.S. still needed to work through with both trading partners before they would be ready to renew the agreement,” Morris said, adding that NMPF strongly supports the USMCA, but the current negotiations offer an opportunity to strengthen the agreement.

Morris pointed to three issues with the USMCA, one of which was the TRQ that allows dairy producers to export tariff-free. Canada agreed to partially open its dairy market to the U.S., but Canada was able to skirt its TRQ fulfillment obligations by awarding the majority of its quota allotments to Canadian processors instead of American companies, Morris said.

The International Dairy Foods Association reported that the tariff fill rate for US dairy exporters was 42% for all 2022 and 2023 quotas. The USTR has disputed Canada’s dairy policies twice.

“So for instance, Canadian skim milk powder manufacturers are the ones that have the lion's share of the USMCA TRQ for U.S. exports of skim milk powder," Morris said. "So surprise, surprise, there's not the same incentive by those skim milk powder Canadian manufacturers to bring product in that you might have from others in the supply chain in Canada, whether that's other food processing companies, importers, distributors. In the case of other products, like yogurt or cheeses, for instance, retailers and food service operators are also cut out of that process entirely,” Morris said.

One issue NMPF would like revisited in the the USMCA is who has access to the TRQ. Morris said that it should be designed to encourage filling the TRQ rather than the current model that seems to reduce the amount of incoming product.

NMPF also has concerns about Canadian dairy protein because of what the group says are artificially low prices. The USMCA put a cap on how much dairy protein Canada can export of products like skim milk powder and milk protein concentrate. However, Canada was able to work around the restrictions by creating different types of dairy protein powders that aren’t subject to the USMCA, according to Morris.

Mexico isn't without its issues, either. The country is the top market for U.S. dairy exports, the USDEC reported.

Mexico entered into a modernized global agreement with the European Union that establishes geographical indications for several food products originating from specific regions, making it illegal to sell imitations of the product, one of which is feta cheese.

“In our view, these are generic terms that have been used by our industry and our partners in Mexico commercially for quite some time. Our concern in the USMCA context is simply to make sure that we don't move backward here,” Morris said.

The U.S. has bilateral USMCA negotiations scheduled with Mexico on July 20.

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