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Dairy group: No deal with Japan could cost US billions

One trade group is warning that Japan's trade deals with the European Union and other countries could cost the U.S. dairy industry billions of dollars in lost sales, adding more pressure on the Trump administration to strike a deal in its upcoming negotiations with the Asian nation.

According to a Jan. 30 report from the U.S. Dairy Export Council, implemented and soon-to-be-implemented trade agreements by Japan with other major global dairy producers put U.S. dairy exporters at a significant disadvantage should it not be on a tariff-free, level playing field.

On Feb. 1, the EU-Japan Economic Partnership enters into force, which will come shortly after the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — a free-trade deal between Japan and two other major milk exporters, Australia and New Zealand, among other countries — was implemented Dec. 30, 2018.

The U.S. was expected to gain tariff-free dairy access to Japan under the Trans-Pacific Partnership, the 11-country trade deal that had previously included the U.S. before President Donald Trump pulled out of it during his first days in office in 2017.

"When I left the Department of Agriculture in 2017, I just assumed the TPP would provide us the opportunity to compete on a level playing field with our friends from New Zealand," Tom Vilsack, president and CEO of the U.S. Dairy Export Council, said in an interview.

"I understood the politics, but I just wished there had been some kind of negotiations with Japan so the void would have been immediately filled. The EU filled that void by concluding its agreement with Japan."

Should the U.S. not secure a free trade deal with Japan, American farmers will miss out on $1.3 billion in dairy sales to the Asian nation over the next decade, according to the trade group, a figure it says will rise to $5.4 billion by 2038.

The group said in the report that milk ingredients including U.S. whey protein, lactose and skim milk powder could be harmed, while U.S. cheese exports to Japan could fall by 80% by 2027.

"U.S. dairy farmers are facing economic hardships, and expanding opportunities overseas is the best way to counter that," Jim Mulhern, president and CEO of the National Milk Producers Federation, said in a statement accompanying the report. "A trade deal with Japan that significantly expands dairy access would make 2019 a brighter year."

U.S. dairy exports to Japan, the fourth-largest American dairy export market, were $291 million in 2017, according to the council, accounting for approximately 5% of total U.S. dairy exports.

However, should a deal be reached, U.S. dairy exports to Japan have the potential to rise to anywhere between $600 million and $900 million over the next five to 10 years, said Vilsack, who served as Secretary of Agriculture under the Obama administration.

The council argued in its report that Australia and New Zealand, the top dairy suppliers for Japan, have a limited capacity to increase their supply, leaving room for U.S. access.

"At a time when we need more export opportunities and need to stabilize prices, now is not the time for us to be at a competitive disadvantage," Vilsack said.

At $67.6 billion, Japan was the fourth-largest overall goods export market for the U.S. in 2017, though U.S. Trade Representative Robert Lighthizer has cited agriculture as a sector stifled by tariff and non-tariff barriers for "decades."

In October 2018, the U.S. Trade Representative's Office notified Congress of its intent to enter into trade negotiations with Japan, and the two can begin bilateral talks this winter. But the U.S. is also preoccupied with implementing a North American trade deal, quelling an ongoing trade spat with China, and pursuing separate trade agreements with the European Union and the U.K.

"There is a lot on the plate of USTR," Vilsack said. "We just want to make sure that in all the important jobs they're doing, Japan is not forgotten."

Should no deal with Japan be reached, Vilsack warned that U.S. farmers will continue to produce milk that cannot be converted into cheese and other products, leading to a further surplus and plummeting prices that could threaten the survival of small- and medium-sized dairy operations. This would also come amid U.S. dairy farmers' ongoing struggles with falling prices, oversupply and being targeted in separate trade spats.

Although the U.S.-Mexico-Canada Agreement is expected to increase U.S. dairy access to Canada, its passage is still pending in Congress. On top of that, Mexico has targeted American cheese with 25% retaliatory tariffs for its inclusion on U.S. metal tariffs. Canada has also slapped its own 10% tariffs on U.S. pizza and yogurt exports.

"I think it is essential that we enter into this agreement," Vilsack said.