Dairy supply management has emerged as a singular turning point in negotiations over NAFTA.
The issue is a complicated one, fueled by strong feelings on both sides of the border, and may ultimately end up sundering NAFTA altogether says Andrew Novakovic, an expert in dairy markets and professor of agricultural economics at the Charles H. Dyson School of Applied Economics and Management at Cornell University.
“Dairy trade groups in the United States, such as the National Milk Producers Federation, have recently upped the ante and taken a very hard line against not only the new pricing class that effectively neutered the ability of U.S. plants to sell milk proteins in Canada but against the supply management system that undergirds the Canadian pricing system.
“Canadian dairy farmers are reacting strongly and vigorously to this. It looks to me that the increasingly hard rhetoric and the Trump Administration’s threat to terminate NAFTA altogether, is being seen as a bit of bullying by their big southern neighbor and creating a kind of patriotic backlash that adds to the more straightforward self-interest resistance of dairy and poultry farmers.
“Where all this ends up remains to be seen, but I do not dismiss the possibility of the U.S. initiating steps to terminate NAFTA. Of course, withdrawing from NAFTA does not, in itself, compel Canada to do anything with respect to its supply management system. I am not at all sure what combination of issues at some future bilateral negotiation with Canada would be more successful in achieving that goal.
“At least one analysis I looked at recently said that the elimination of NAFTA would put trade between all three countries back entirely under WTO rules. Under these rules, tariffs would rise in all three countries but the United States would face higher tariffs on its exports to Mexico in particular than Mexico would going in the other direction. This is primarily because WTO rules negotiated in the 1990s gave preferential treatment to less developed countries.”