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Cheese labeling poses problem in NAFTA talks

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Cheese labeling poses problem in NAFTA talks

As trade talks between Canada, Mexico and the U.S. continue, one issue could ferment friction: cheese names.

Under a tentative agreement between the U.S. and Mexico, announced by President Donald Trump's administration on Aug. 27, U.S. producers of some specialty cheeses would be able to continue selling their products in Mexico, the largest export market for the U.S. dairy industry. If included in a final agreement, that clause could offer protection for U.S.-produced cheeses sold under names such as Parmesan and Brie, though the Trump administration has yet to name the specific cheeses that would be protected.

Canada is seeking to reach its own deal with the U.S. as part of talks to overhaul the 24-year-old North American Free Trade agreement between the three countries, and dairy has been a key sticking point in the talks.

The clause could pose a challenge for Canada, which can only import cheeses under those names if they come from specific regions of Europe, experts say, because of that country's existing trade agreement with the EU, known as the Comprehensive Economic and Trade Agreement, or CETA.

The names, referred to as "geographical indications," limit food and agricultural products sold within the EU — and, frequently, those that can be sold in foreign markets the EU trades with — that can carry certain names. Under EU law, for instance, a cheese can only be called Parmigiano Reggiano if it comes from certain areas near Parma, in northern Italy, just as only sparkling wine from the Champagne region in France can use that name.

Canada's decision to abide by those rules and the U.S.' interest in protecting domestic producers of specialty cheeses create a challenge for negotiators, said Meredith Lilly, a trade adviser to former Canadian Prime Minister Stephen Harper who oversaw Canada's deal with the EU.

"It will be tricky to reconcile Canada's geographical indications commitments in CETA with the U.S. trademark approach," Lilly told S&P Global Market Intelligence in an email interview. She is a professor of international affairs at Carleton University in Ottawa.

That Mexico has tentatively agreed to allow the import of U.S. cheeses signals there may be a way for both Mexico and Canada to buy U.S. cheeses while also abiding by geographic indication rules, Lilly added. Mexico and the EU reached an agreement in principle in April, a deal that contains similar limits on the use of EU-protected names in the Mexican market.

Negotiators from both Mexico and the EU are working to finalize that agreement by the end of the year, according to the European Commission.

The U.S. indicated its opposition to the EU's geographical indication system earlier this year. A report from the Office of the U.S. Trade Representative, or USTR, said U.S. producers can only sell their products in countries that follow the EU's rules under alternative names — cheese can be sold as "imitation feta," for instance — but such name changes are "costly, unnecessary, and can reduce consumer demand for the non-EU products."

Cheese producers facing sales impact

U.S. cheese producers could see their sales abroad slump if negotiations between the NAFTA countries fail to secure access for cheese from U.S. sources in both Canada and Mexico.

Earlier this year, Plymouth, Wis.-based Sartori Co, changed the name it uses to sell its domestic Asiago cheese — Asiago also refers to a place in northern Italy where it originates — in Mexico to "Sartiago" in anticipation of that country's agreement with the EU. In the five months after the name change, the company's revenue fell 30%, Jeff Schwager, the company's president, told S&P Global in an interview.

Schwager said the name change deterred customers who wanted to be sure they were getting Asiago cheese. "If they go into the store and it doesn't say it, they won't buy it," he said.

In Mexico, many shoppers who buy specialty cheeses seek out imports. Options that are marketed with names other than the most widely known ones are likely to be ignored or mistaken for domestically produced products of lesser quality, Schwager said.

Sartori also exports its cheese to Canada, Schwager said. Unlike in Mexico, U.S. dairy exports to Canada are currently subject to steep tariffs above a quota, limiting the appeal of that market to many U.S. producers.

Food giant The Kraft Heinz Co. also would have to abide by the terms that the U.S. strikes with its neighbors. In the 12 months ended July 31, the company sent dozens of shipments of Parmesan cheese worth millions of dollars to Mexico, according to Panjiva Research, a division of S&P Global Inc.

With discussions between the three NAFTA countries likely to continue into the fall, Schwager says he hopes that Canada and Mexico will continue to allow U.S.-produced specialty cheeses into their markets.

Still, he added: "We're not counting on that."