Question Period Note: CUSMA – Agriculture and Agri-Food Issues

About

Reference number:
AAFC-2020-QP-00005
Date received:
May 12, 2020
Organization:
Agriculture and Agri-Food Canada
Name of Minister:
Bibeau, Marie-Claude (Hon.)
Title of Minister:
Minister of Agriculture and Agri-Food

Issue/Question:

Will CUSMA affect investments such as Canada Royal Milk’s (Feihe) plans to manufacture and export infant formula in Kingston, Ontario?

Suggested Response:

  1. The Government of Canada continues to encourage foreign and domestic investment in agriculture and agri-food industry.

  2. This investment is positive for the Canadian dairy industry, as it will create new middle class jobs and contribute to Canada's long-term export growth.

Background:

Following the conclusion of negotiations, leaders signed the Canada-United States-Mexico Agreement (CUSMA) on November 30, 2018. In April, all parties notified of the completion of their domestic ratification procedures for the CUSMA. Consistent with the CUSMA text, the Agreement is to enter into force on the first day of the third month following the last notification, which is July 1, 2020.
The CUSMA preserves duty free access to North American markets for a wide range of Canadian agriculture products such as meat, grains, pulses, maple syrup, wines and spirits, and processed foods. The CUSMA includes new obligations for agricultural biotechnology that establish practical, trade-facilitative approaches to getting safe products to market. The Agreement contains provisions to minimize time gaps in authorizations and ensure that cases of low level presence (LLP) occurrences in imports are managed based on risk and in a timely and pragmatic manner. Agriculture stakeholders will have new market access in the form of tariff rate quotas into the United States for refined sugar and sugar-containing products, as well as for certain dairy products including cheese, cream, milk beverages, and butter. Canada also achieved liberalized rules of origin for margarine, and eliminated tariffs on peanut butter, whey and margarine.
As part of the negotiated outcome, Canada agreed, among other things, to provide additional market access to the United States for dairy, poultry and egg products; to ensure the elimination of current milk price classes 6 and 7 and ensure prices for milk used to make certain products use a new pricing formula (i.e., using a U.S. reference price); to impose an export charge for skim milk powder, milk protein concentrate, and infant formula if exports exceed certain thresholds; and to publish, notify and consult on various aspects of milk class pricing.

Canada also agreed to allow grain grown in the United States, which is of a variety that is registered in Canada, to receive an official Canadian grain grade. Additionally, Canada agreed to remove requirements for official inspection certificates to indicate that grain grown in the United States is of foreign or mixed origin. Previously, the Canada Grain Act excluded any type of imported grain, including from the United States, from receiving statutory Canadian grades based on origin.
Infant Formula Export Threshold
Under CUSMA’s requirement to monitor exports of infant formula, exports exceeding 13,333 tonnes in the first year of the agreement and 40,000 tonnes in the second year of the agreement will be subject to an export charge of $4.25 per kilogram. This mechanism only applies to infant formula containing more than 10% on a dry weight basis of cow milk solids. Canada agreed to this commitment following a significant planned investment to manufacture and export infant formula. Specifically, Canada Royal Milk, a Canadian subsidiary of Feihe International Inc., is building a $332 million plant in Kingston, Ontario. This investment constitutes the first manufacturer of note for infant formula in Canada. The plant will utilize significant volumes of cow and goat milk and has indicated it plans to operate one line producing 30,000 MT from cow’s milk and a separate line using goat's milk.
Trade Relationship with CUSMA Partners
Canada and the United States benefit from highly integrated supply chains with bilateral agriculture and seafood trade totaling C$66 billion in 2019, of which Canadian exports totaled C$37.3 billion. In addition, both countries work collaboratively on issues of mutual interest such as regulatory cooperation, science and technology cooperation, third country market access, and promotion of science-based international standards.
Canada and Mexico enjoy a productive bilateral agricultural trade relationship and have highly integrated markets. Canada was Mexico’s fourth-largest export market for agri-food and seafood products in 2019, while Mexico was Canada’s fourth-largest export market. Overall, bilateral agricultural trade between Mexico and Canada reached C$4.7 billion in 2019. Mexico enjoyed an agricultural and seafood trade surplus of C$825 million in 2019.

Imports of Fluid Milk for Retail from the United States
The only existing tariff rate quota that applies to imports from the United States is the one negotiated under the World Trade Organisation (WTO). This tariff rate quota for fluid milk of 64,500 MT is deemed filled by personnal cross-border purchases (within the limits authorised by the Canada Border Services Agency – up to 20kg per person and a value of $20 or lower).
After July 1, CUSMA will apply to imports from the United States. The CUSMA provisions are similar to those in the Comprehensive and Progressive Agreement for Trans-Pacific Parnership (CPTPP), the Agreement stipulates that 85% of the tariff rate quota be allocated for the importation of milk in bulk (not for retail sale) to be processed into dairy products for use as inputs in further food processing.
Imports from the United States are also eligible under supplemental import permits. To date, no authorization for supplementary imports has been granted for fluid milk for retail sale.
Other dairy beverages similar to milk are imported under different tariff codes. They are part of a group of products made with natural milk constituents. While there are tariff rate quotas to import these products under the WTO, CPTPP, and CUSMA, the volumes are quite limited.

Additional Information:

None