Trade

The value of commercial exports of U.S. dairy products has grown tremendously since the mid-2000s. Before that, there were sporadic periods of significant dairy exports, but they were often subsidized by the U.S. Government. The United States competes with other large dairy suppliers, such as New Zealand, the European Union (EU), and Australia.

There are several reasons why U.S. dairy product exports have grown over the years. Income growth in East Asia, Southeast Asia, Latin America, and other regions led to an increase in dairy product consumption facilitated by rising global trade. Free trade agreements (FTAs) with various countries have provided the United States with greater access to world markets. Exports to Mexico increased through the North American Free Trade Agreement (NAFTA), which was recently replaced by the United States-Mexico-Canada Agreement (USMCA). China’s market-based reforms, including those related to its accession to the World Trade Organization (WTO) in 2001, opened what is now one of the world’s largest markets for dairy product imports. Both the EU and the United States have reduced domestic support and export subsidies for dairy products in recent years, bringing about greater competition in world markets.

A series of trade negotiations known as the Uruguay Round led to the establishment of the World Trade Organization (WTO) on January 1, 1995. Before the WTO, the United States used explicit dairy product import quotas to shield the domestic dairy industry from international dairy markets. As a member of the WTO, the United States, along with many other dairy-trading countries, established tariff rate quotas (TRQs) for dairy products. The TRQs allow imports at very low tariffs up to fixed amounts. Any additional imports are subject to very high tariffs. Many of the TRQs are administered through licenses for imports of specific products from specific countries or regions. Imports have been liberalized further through FTAs with some countries.

A point of contention between the United States and the EU has been the use of geographical indicators (GIs). GIs are defined by the WTO as “indications which identify a good where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin.” For several years, the EU has been pushing for the extension of protections for GIs to cover certain foodstuffs. At issue for the dairy industry are certain types of cheese names, such as Parmesan, feta, and provolone. The EU is seeking an international registration and protection system, as well as the removal of generic terms for various products. The EU has entered into some FTAs that include provisions concerning GIs. The United States and many other countries maintain that existing WTO rules concerning GIs are sufficient and that expansions of GI protections are not warranted.

Some recent developments that have had significant effects on U.S. dairy trade include the following:

  • In response to U.S. tariffs on imports of steel and aluminum, Mexico implemented tariffs on certain goods, including cheese, from the United States in June 2018 and increased them in July 2018. In May 2019, Mexico lifted these tariffs after the United States’ agreement to lift tariffs on steel and aluminum.
  • In the summer of 2018, China implemented additional tariffs on imports of various U.S. goods, including most dairy products. This was in response to U.S. tariffs imposed on various products imported from China. In September 2019, China exempted some products from tariffs that had been previously imposed. The only dairy product included in this exemption was modified whey for animal use that meets certain specifications.
  • After finding that the EU failed to implement WTO Dispute Settlement Body regulations, the United States began applying import tariffs of 25 percent on certain goods from the EU in October 2019, including many dairy products. These tariffs are in addition to those already in place for imported goods from most WTO members.
  • On January 1, 2020, the U.S.-Japan Trade Agreement went into effect. Most tariff reductions for dairy products will be phased in over several years.
  • On January 15, 2020, the President signed a Phase One trade agreement with China. China agreed to increase imports of agricultural products and to make some changes to several non-tariff trade issues. On February 18, 2020, as part of this agreement, China announced a new round of tariff exclusions for U.S. agricultural commodities (including some dairy products) affected by the additional tariffs previously levied by China. China-based importers must apply for the tariff exclusions.
  • The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1, 2020. Major dairy-related provisions and developments of the agreement include the following:
    • Tariffs on dairy products traded between the United States and Mexico remain at zero, as under NAFTA.
    • Tariffs on dairy trade between the United States and Canada were unaffected by NAFTA, but with USMCA, Canada and the United States are phasing in new access for dairy products to be traded in both directions over several years.
    • Six months after entry into force, Canada eliminated a classified pricing structure that maintained relatively high prices to be paid to dairy farmers but allowed Canadian processors of certain dairy ingredients (including skim milk powder, milk protein concentrate, and some other types of milk powders) to pay relatively low prices for raw milk from the farm. With relatively low input prices for milk used for these ingredients, Canadian exporters were able to export them at relatively low export prices.
    • On December 9, the Office of the U.S. Trade Representative (USTR) announced that the United States is challenging Canada’s allocation of dairy TRQs under USMCA. Canada had set aside and reserved percentages of the TRQs for processors and so-called “further processors.” According to USTR, this is contrary to Canada’s USMCA commitments, limiting U.S. access to negotiated in-quota quantities.

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