Fact check: Does Canada charge a 270% tariff on US dairy?

DCNFEmily Larsen, DCNF

President Donald Trump said in several tweets that Canada charges the U.S. a 270 percent tariff on dairy products.

“Our Tariffs are in response to his of 270% on dairy!” Trump tweeted Saturday.

“Tax Dairy from us at 270%. Then Justin acts hurt when called out!” he tweeted Sunday.

Trump said Thursday that Canadian dairy tariffs could be as high as 300 percent.

Verdict: True

Canada has a quota system for imports, and above a certain volume, it imposes high dairy tariffs ranging from 201.5 percent to 313.5 percent. Before those quotas are met, dairy products enter Canada duty-free or subject to much lower rates.

Fact Check:

Trump tweeted about Canada’s dairy tariffs leading up to and after the G7 summit, a gathering of leaders from seven of the world’s most industrialized nations, on Friday and Saturday. Disagreements about trade policy have caused tension between Canada and the U.S.

Canada criticized new U.S. tariffs on steel and aluminum and announced retaliatory tariffs in May. The U.S. wants to renegotiate the North American Free Trade Agreement (NAFTA) with a five-year sunset clause, but Canadian Prime Minister Justin Trudeau said that the clause is a non-starter.

Trump is right that Canada imposes very high tariffs on dairy products that limit U.S. participation in the Canadian market, though the exact percentages vary depending on the product and when it is imported.

Canada heavily regulates its dairy industry with a supply management system that impacts production and sets target prices for dairy products. As a part of that system, it uses set tariff rate quotas (TRQ) for imports. Dairy products imported before a quota on a product is met are subject low tariffs or no tariffs, while products imported after the quota are subject to tariffs ranging from 201.5 percent to 313.5 percent.

“As a whole, the 270 percent figure though represents a strong ballpark for the various exorbitant tariff rates that limit US dairy access to the Canadian market,” Shawna Morris, trade policy vice president at the U.S. Dairy Export Council, told The Daily Caller News Foundation in an email.

For example, certain milk protein substances imported into Canada from the U.S. before the quota is met enter Canada duty-free, but they are subject to a 270 percent tariff after the quota is met. Ice cream products are subject to a 277 percent over-quota tariff.

Dairy industry groups say that Canada’s tariffs are designed to block access to the Canadian market after a certain point, and that because of the tariffs, U.S. dairy producers are not shipping as much dairy to Canada as they would like.

“Generally speaking, when it comes to trade around the world, we get upset when there’s a 10 percent tariff on something, let alone 270 percent,” Bailey Wood, vice president of communications at the International Dairy Foods Association, told TheDCNF. “Canadian tariffs are so stiff and so punitive, it’s just not worth it. So we look for other markets.”

U.S. dairy industry groups contrast the Canadian market for dairy exports with the Mexican market to show the effect of the tariffs. Mexico, which phased out tariffs on dairy imports through NAFTA, is the top market for U.S. dairy exports. It imported about $1.3 billion in U.S. dairy products in 2017. NAFTA did not eliminate Canada’s tariff quota system for dairy products, and Canada accounted for $636 million in U.S. dairy exports.

Many U.S. dairy products imported into Canada are not subject to the over-quota tariffs, though. A spokesperson for Agriculture Canada told TheDCNF in an email that most dairy products imported into Canada enter within tariff rate quotas. Imports of some dairy products, like powdered buttermilk and milk protein substances, did not exceed the quota allotment in 2017, an annual report shows – meaning that imports of those products from the U.S. were not subject to the high tariffs.

Companies decide to not import dairy products when they are subject to the exorbitant rates. “It doesn’t make business sense to do that,” Wood said. The over-quota tariffs essentially act as a cap on imports.

Canada also allows imports of some dairy products at the lower tariff rates without counting them toward quotas as a part of its Import For Re-Export Program (IREP). IREP products are further manufactured into products to be exported, such as cheese imported to be added to frozen pizzas that are then exported.

While IREP is one reason that Canada has become a top market for U.S. dairy exports, U.S. dairy farmers are still limited in what they can sell directly to Canadian consumers.

Canada places additional restrictions on dairy imports that block foreign access to the Canadian market. The country says that it allows 64,500 metric tons of fluid milk into the country under the lower tariff rate, but it assumes that the amount is filled by cross-border shoppers who buy milk in American stores and then bring it back to Canada – meaning that commercial fluid milk imports to be consumed in Canada are subject to a 241 percent tariff. Canada allows 484 metric tons of ice cream imported at the lower tariff level, but only allows ice cream imported in retail-size containers.

Despite the tariff barriers, Canada imports more agriculture products from the U.S. than the U.S. imports from Canada. An Agriculture Canada spokesperson said that it is important to note that the U.S. has a $2 billion agriculture trade surplus with Canada in 2017.

At one point, U.S. dairy exporters found a loophole in Canada’s dairy tariff system. Ultrafiltered milk, milk protein used to make cheese and yogurt, is not on the tariff list or subject to quotas, so it is imported into Canada duty-free. But Canada implemented a new “Class 7” dairy pricing regulation last year that set prices for milk protein concentrates at the lower U.S. price, causing Canadian business to buy less ultrafiltered milk from U.S. suppliers.

Dairy market stakeholders say that the Class 7 pricing system undercuts U.S. exports and may violate NAFTA. Sen. Chuck Schumer asked U.S. Trade Representative Robert Lighthizer in April to address the Class 7 pricing program and other Canadian trade restrictions on the dairy industry during NAFTA renegotiations.

U.S. dairy farmers have faced low milk prices for the last few years as large-scale farms and supply have increased, straining small dairy farms. Some farmers are selling milk for less than what it costs to produce. Wisconsin lost 500 dairy farms last year.

“Our rate of growth of production of raw milk at the farm level is greater than the growth of domestic demand,” Brian Gould, a professor in the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison, told TheDCNF. He said that U.S. dairy exports are critical for the success of the dairy industry.

“The growth market for U.S. dairy products is not domestic,” Gould said. “We rely on dairy export markets to clear the books.”

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