Canadian Dairy, Auto Roll-Up Will Be on Negotiating Agenda at Sunset Review

They were discussing the disputes that haven't been put to rest in the North American free trade agreement for a Washington International Trade Association panel discussion, examining what will be on the table as Canada, Mexico and the U.S. do a sunset review of the FTA.

Nicholas Paster, the former Office of the U.S. Trade Representative official, now at King & Spalding, said that U.S. negotiators wanted a process that was quicker than the World Trade Organization's litigation process, and they got that, but they also wanted something that would resolve disputes. "Whether it's done that, I'm not so sure," he said.

Shawna Morris, executive vice president for trade policy and global affairs at the U.S. Dairy Export Council and National Milk Producers Federation, agreed with that characterization.

She said that although dairy exporters won their case on Canada not honoring its market access promises through tariff rate quotas, they didn't get that access, because Canada rejiggered its TRQ administration without committing to fill those quotas with U.S. exports.

The dairy exporters pushed USTR to bring a second case, on compliance, and she complained that the second panel looked at the "technicalities of what’s on paper rather than the spirit" of the agreement, which was to open a little access to dairy producers south of the border.

"We’re not looking to dismantle the Canadian supply chain management program," or to have tariff-free open trade in dairy products with Canada, she said. Rather, her members just want the TRQs to be used, and for there to be a penalty if quotas aren't used throughout the year.

"Who has access to them is the make or break of whether they’re working or not," she said, and only allowing Canadian dairy processors to access the bulk of them means that U.S.-made cheese, yogurt, butter and the like will not be sold in Canada.

Morris said dairy exporters -- who have bipartisan political support -- will seek redress in the 2026 review, including some kind of catch-up mechanism for the lost sales. "We’ve been cheated out of a lot of access for the last few years," she said.

While Mexico swiftly complied with its loss at a panel, the U.S. is the other player who has not complied with a panel ruling to its trading partners' satisfaction. When asked about that by International Trade Today, Paster said, "From the U.S. perspective, it was never an option to cave on this."

He said the U.S. feels that if originating core parts are allowed to include non-North American content when calculating regional value content for the vehicle, you are rounding up multiple times, and the end result is more Asian parts in cars getting a tariff break. He emphasized that the cost of not reaching the RVC is only 2.5% -- however, that is only true for cars, not for pick-up trucks.

"You want to avoid having non-USMCA parties free-riding for USMCA treatment," he said.

He said that just because the U.S. didn't honor the panel decision "that doesn't necessarily mean the whole system's broken."

Moderator Michael Smart, managing director at Rock Creek Global Advisors, added, "There is no police force for USMCA panels. It’s up to the parties to comply."

He later asked Paster how U.S. negotiators would ask Canadian and Mexican negotiators to change roll-up rules. He said anything that waters down RVC is a non-starter for the U.S., as its primary goal in renegotiating NAFTA was to drive more auto manufacturing to the U.S.

"There’s some silence in the chapter four rules on how that roll-up applies in respect to the whole vehicle itself," he said. "If you fill that gap, it’s a fairly easy fix; whether that’s an acceptable political solution for Mexico and Canada, that’s another story."

Eric Gottwald, a policy specialist on trade at the AFL-CIO, suggested that the review is going to focus on autos, auto parts and aerospace manufacturing, where, he said, jobs are continuing to go to Mexico because Mexican workers make one-tenth what American workers do.

He said that Mexico needs to fully implement its labor reforms to help Mexican workers earn more.

"I think that’s going to be a sticking point in the 2026 review," he said.

Paster said he doesn't think there will be a full renegotiation of the entire USMCA, but also thinks there will be at least one country, if not all three, who says they don't want to renew the deal without changes.

Gottwald was more direct, saying, "President [Donald] Trump, he loves to inject uncertainty into negotiations. At any point, he could threaten to pull out from USMCA entirely." He said those who depend on North American trade should expect "a very bumpy ride" during the next three to four years.