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The U.S. dairy industry has submitted its demands for the upcoming renegotiation of NAFTA.Bloomberg

The U.S. dairy industry has submitted its demands for the upcoming renegotiation of NAFTA, pushing for freer trade in dairy overall and more specifically for a reversal of new Canadian rules on milk-derived products.

These requests came in a letter submitted to the U.S. government this week as it collects input from industry while preparing American negotiating positions for NAFTA talks, scheduled to start in August.

The industry demands are an indicator not only of what American negotiators could seek at the bargaining table, but also of what U.S. lawmakers with certain industries in their state will expect in exchange for theirs vote on a deal.

Dairy could be one of the more contentious issues.

The dairy lobby's 15-page letter had two main requests regarding Canada: a reversal of new rules on ultrafiltered milk products and increased access to the Canadian market that exceeds the 3.25 per cent offered in the early version of the Trans-Pacific Partnership.

It describes the upcoming modernization of the North American Free Trade Agreement as a final chance to achieve liberalization in the dairy trade with that issue stalled in other international negotiations.

"We see NAFTA modernization discussions as the last opportunity to address just that type of unfinished business in order to truly open up the North American market," said the letter from the National Milk Producers Federation and the U.S. Dairy Export Council.

"Canada has taken additional steps over the years to limit imports whenever Canada's already highly restrictive import restrictions were deemed to be insufficiently limiting."

The letter suggests the highest priority for the U.S. industry isn't the overall supply management system. It's the specific question of filtered-milk products. Canada has allowed this milk byproduct, used mainly in cheese-making, to be sold domestically at lower prices.

The U.S. lobby says this is having a spillover effect on international markets as Canadian producers benefit from import controls, massive tariffs of more than 200 per cent on foreign competition and now the ability to sell new products at non-supply-managed prices.

This is the issue that prompted President Donald Trump to start blasting Canada earlier this year after a visit to Wisconsin.

At the time, a small number of Wisconsin dairy farms were in crisis after a major processing plant said it would stop buying their milk. It blamed a loss of Canadian customers after the rule changes, although some analysts have suggested the Canadian decision was a minor factor and that the northern neighbour was being used as a scapegoat.

A crisis unit within the state government managed to find markets for most of the farms, but the incident galvanized Trump, who called Canada's dairy industry rules "very unfair."

As NAFTA talks approach, the Canadian dairy lobby's argument is that the recent rule changes apply only to domestic markets and are legal under international trade law. It expects the federal government to fight for the status quo.

"The Canadian dairy industry is confident that the ... (rule) respects our trade obligations. We are also confident that the Canadian government is going to protect its dairy industry," said Isabelle Bouchard of Dairy Farmers of Canada.

"What the government has told us is they will do everything they can to protect the industry. ...We certainly hope there will be no negative impact on our industry."

Canadian dairy farmers say the crisis in Wisconsin only bolsters the case for supply management controls, because set prices, import limits, and tariffs protect farmers from swings in commodity prices.

They also accuse the U.S. dairy lobby of blaming large problems on one small, Canadian factor.

Peter Hardin, the longtime editor of a Wisconsin dairy-trade publication, The Milkweed, agreed, in a piece for the Wisconsin State Farmer this spring titled: "Don't blame Canada for dairy woes, look around."

He said the problem isn't Canada, it's excessive American milk production, with a 21.8 per cent increase over four years in Michigan, 10.9 per cent in New York, and 7.6 per cent in Wisconsin.

Canada’s ambassador to the U.S. says he expects to have constructive trade talks with the Trump administration despite the president questioning Canada’s practices in the dairy industry.

The Canadian Press

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