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Dairy industry optimistic for Japan trade deal, warns of no-deal consequences

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Dairy industry optimistic for Japan trade deal, warns of no-deal consequences

The U.S. dairy industry is pressing the Trump administration to complete an announced trade deal with Japan by the end of this month, cautioning against billions of dollars in lost sales should it not come to fruition.

Tom Vilsack, the former secretary of agriculture under President Barack Obama and the current president and CEO of the U.S. Dairy Export Council, a lobbying group, told S&P Global Market Intelligence that if negotiators cannot reach an agreement by the end of the month, then the U.S. dairy industry could lose a significant portion of market share to its European and Pacific nation competitors.

Vilsack just returned from a week-long trip to Japan and China to promote exports of U.S. dairy.

"I'm optimistic and hopeful and agreement can be reached," said Vilsack, also the governor of Iowa from 1999-2007. "There's political imperative for the U.S. and Japan to do this. I'm hopeful it gets done."

President Donald Trump tweeted August 25 at the G-7 summit in Biarritz, France that a "big trade deal just agreed to with Prime Minister [Shinzo] Abe of Japan," adding that the deal will be great for farmers and ranchers. However, details have been scarce to come by.

"There is the old adage in trade discussions that nothing is agreed to until everything is agreed to," Vilsack said. "No one knows what the agreement looks like."

Should the U.S. and Japan not fully sign off on a deal, U.S. dairy could lose out on $5.4 billion in annual dairy exports over the course of the next 21 years, the council estimates.

The European Union, through the EU-Japan Economic Partnership Agreement, and New Zealand and Australia, under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, will inevitably swoop in to fill the lost sales for the U.S. when both deals are fully implemented, the council warns.

Vilsack said that an agreement would level the playing field with the EU and New Zealand, which enjoy a competitive advantage over the U.S. due to their recent deals with Japan.

Japan is the largest cheese importer in the world, and the group believes that Japanese dairy imports will only increase in the years ahead due to increased consumption and constraints on its domestic dairy farming sector.

U.S. Trade Representative Robert Lighthizer said the deal in principle will open up markets to roughly $7 billion in U.S. products, including dairy. Vilsack sees the East Asian nation as a gold mine for products like cheese and other dairy ingredients.

As part of his visit to Japan, Vilsack and his team promoted specialty American cheeses to specialty U.S. cheeses that they hope will sell well in the nation.

But whatever the cause may be, U.S. dairy exports, both in terms of cheese volume and total export value to Japan in July, the latest month which statistics are available, were the lowest for any month of 2019 to date. U.S. cheese exports in terms of volume to the third-largest cheese market were down 15% year over year in July, according to the council.

Trump said he expects the deal to be sealed by the time the United Nations General Assembly meets in late September. Abe said that he hopes to sign the deal at his September meeting with Trump at the UN.

This has put a tight deadline on negotiators to secure a deal, as hang-ups remain over the threat of tariffs on imports of Japanese cars and auto parts.

The U.S. Trade Representative’s Office declined to comment on the status of the deal between the two countries.

Securing a deal with Japan would give Trump a much-needed trade victory as he readies his campaign for the 2020 election. The two nations do $217.6 billion in two-way annual goods trade, with the U.S. running a $67.6 billion goods deficit in 2018, according to the USTR's Office.

The Trump administration made clear from the start its intent to boost market export access in Japan for U.S. dairy, which has been targeted with crippling retaliatory tariffs by China, Mexico, Canada and the EU in those separate trade spats.

The U.S. dairy export industry was headed toward record activity in China through the first five months of 2018 before the start of the trade war, which then led to a 45% drop in exports to that Asian nation.