— This is the script of CNBC's news report for China's CCTV on September 12, 2018, Wednesday.
In recent days, though, we've been hearing very strong statements from both the United States and Canada, and they have postponed deadline for negotiating an agreement for many time, signing a tough negotiation. However, a new agreement of NAFTA maybe shows a glimmer of hope, according to Reuter's latest news. We know that, the controversial in the bilateral negotiations between the United States and Canada is：first, dairy industry under Canada's policy protection, second, Canada want to keep trade friction solving mechanism, while the information reveals that Canada will allow dairy products from the US enter Canada's dairy market with "Limitation" when Canada realized it has to make compromise on specific issues. In return for concession, Canada hope the US can compromise, keeping the dispute settlement mechanism in Chapter 19.
At financial market front, the dollar fell nearly 100 basis points, or nearly 0.8 percent, to c $1.3043 shortly after news of Canada's intention to make concessions; we can see that overnight gains in the Canadian dollar allowed the dollar to trade off almost all of its gains since September. Next, let's brief the 2 controversies we mentioned just now.
To Canada's dairy market, under protection from "Dairy supply management system plan", its dairy price keeps at stable level, simultaneously, imposing heavy tax on foreign dairy to protect domestic market shares, among that, tax on US dairy is as high as 270%. However, in the US, most of dairy farmers engaged in dairy production can get allowance from the Fed government, so US dairy is over-production amid this kind of production mode. That is why US wants to open up imports channel to Canada, and that has been opposed by Canada. A source saying that Canada will allow US dairy enters its dairy market with limitation, while on the availability, we throw it in doubt. There are 2 reasons behind that, first,
Canadian dairy farmers who has great political influence may against any changes and are unhappy to lost any protection, there are lobby group said that Canada has already made concession to foreign importers after Canada reached the Economy and Trade Agreement with EU, causing Canadian dairy farmer lost 5% home market shares, which worth around $17bn, so a further potential compromise to US importers will definitely trigger opposition from local economy groups. And the second reason I'm going to say that is the concern about Canada's election next year.
Canada president Trudeau will face election next year, but now, he has already drawn the ire of voters at home on a number of issues, the recent opinion survey shows that voters who think Trudeau is "weak-spirited "and "pretentious" accounts for 31% and 27%, so if Trudeau make the dairy farmers who is the major voters dissatisfied again in NAFTA negotiation, then this political pressure will be the headwind to the negotiation.
And current analysis believes if Canada grants privilege of dairy importing to the US in the end, then related terms may be similar to the terms that has been reached with EU. Retaining dispute settlement mechanism is an exchange of opening up dairy market with limitation, helping Canada challenge US anti-dumping and countervailing investigations under its domestic laws. So the negotiation prospect is still not clear now, and time gets increasingly tight. The US and Mexico would like to reach an agreement before Mexico president takes office on Dec 3, but US law says you have to submit agreement draft before Oct 1, then there are 90 days for congress to review and vote. We will keep an eye on this issue.