US trade policy milks America’s dairy farmers

U.S. dairy is in trouble. That’s why, in a letter to U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue, 50 members of the House of Representatives lobbied for greater access to the Japanese market. They’re in for a big disappointment.

Japan is a big market for U.S. dairy. And dairy is an important agricultural export for the United States. Dairy farms have been hit hard over the past few years, with more than 6,000 having gone out of business, amounting to a 15 percent decline. The letter looks to Japan, where demand will shortly outstrip domestic supply. Opportunity beckons.

But there’s a problem. Japan has trade agreements with Europe on the one hand, and Canada, New Zealand and other powerhouse dairy exporters through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on the other. These agreements include tariff and other preferences that give European, Canadian and New Zealand exporters a big advantage over U.S. dairy.

So, what’s the solution? The letter pins its hopes on Phase 2 of the U.S.-Japan trade deal. The “ask” is that Phase 2 give U.S. dairy the same tariffs that Europe, Canada and New Zealand get. The language is fanciful: “Japan must ensure that the terms of trade offered to the United States are better than those offered to other, less valuable, markets.” This can’t happen. 

The reason is simple: The World Trade Organization (WTO). Europe, Canada and New Zealand, for example, get better tariff treatment and other concessions because of the trade agreements they’ve signed with Japan. The WTO allows this. But the WTO does not allow ad hoc tariff discounts in lieu of a trade agreement. This is exactly what the House members are demanding.

The only solution is for the U.S. to match the free trade deals that Europe, Canada, New Zealand and others have signed with Japan, like CPTPP. But Phase 2 U.S.-Japan can’t pull this off. Even building on Phase 1, it won’t cover “substantially all” trade, one of two criteria set out by the WTO. Instead, U.S.-Japan is a patchwork of give-aways to a few industries, most in the form of Japanese promises to buy more from the United States. Interestingly, Brussels has informed Tokyo that all Japanese trade deals should cover substantially all trade, an undeniable swipe at U.S.-Japan.

Lighthizer can count on getting more letters. That’s why he voiced frustration last week about how free trade agreements and multilateralism don’t go together. He was targeting his remarks at Europe, which has concluded 77 bilateral trade deals. This wasn’t an endorsement of the WTO. Rather, Lighthizer was bemoaning the fact that the U.S. has fallen behind Europe in signing bilaterals. 

It’s doubtful, moreover, that the Trump administration is interested in playing catch up. These days, Washington sees tariffs as political leverage over other countries. The U.S.-Japan deal, like the U.S.-China one, preserves this leverage while managing a few trade lines through barter, all with little congressional oversight. That 50 House members lobbied for such a deal suggests that Congress is willing to play along.

But it can’t work. It’s impossible to plan for what an ad hoc industry-specific concession will mean for other sectors of the economy. More phases of a trade deal are required to fix the mistakes made by previous ones. Trade becomes hopelessly politicized. Trump can’t deliver on the dairy letter, just like he can’t deliver on the lobster letter before that.

The letter then makes an interesting plea. It demands that Phase 2 U.S.-Japan “must also include effective disciplines for applying sanitary and phytosanitary measures that are science-based as well as enforceable commitments to protect common cheese names.” There are two issues here. 

The first is about health and safety standards, which can be more restrictive than tariffs. The second is about geographical designations, like Feta cheese and Roquefort cheese, that are protected as intellectual property through trade deals. Both are critical to the U.S. dairy industry, and American agriculture more broadly. The irony is that these concerns should prompt the 50 House members to write another letter in support of the WTO. 

Health and safety standards are far more protectionist than tariffs. Tariffs are just a tax on trade. A health and safety standard can result in a ban on trade. The chapter on these under the U.S.-Mexico-Canada Agreement (USMCA) is excellent, but it necessarily builds on the WTO, and most of the litigation that U.S. agriculture will need in the future would be more useful if it is filed in Geneva. 

U.S. dairy is also right to worry about the names of cheeses. Europe likes to protect them through its free trade agreements. But here, too, the answer is to negotiate a U.S.-EU free trade agreement, and to push for a wider deal on geographical indications at the WTO. 

The letter ends by calling on the Trump administration to “swiftly pursue” Phase 2 U.S.-Japan to build on the “incredible strides you already made in this important market.” These 50 House members should know that Phase 2 can’t compensate for Trump’s decision to withdraw from the Trans-Pacific Partnership, nor for his abandonment of the WTO.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, a nonresident Senior Fellow at the Atlantic Council, and host of the podcast TradeCraft.