Washington Insider -- Monday

Mexican Comment on NAFTA Trade Tensions

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

US Deal With China to Boost Exports Announced by Trump Administration

The Trump administration announced a deal with China to boost exports. The plan would boost access to the Chinese economy for beef producers, electronic-payments providers and natural-gas exporters. “U.S.-China relationships are now hitting a new high especially in trade,” Commerce Secretary Wilbur Ross said in unveiling the package at the White House.

Beef. Following one more round of technical consultations between the U.S. and China, China is to allow imports of U.S. beef on conditions consistent with international food safety and animal health standards and consistent with the 1999 Agricultural Cooperation Agreement, beginning as soon as possible but no later than July 16, 2017. Reopening China to U.S.-produced beef, Ross said, paves the way to a $2.5 billion market that U.S. ranchers and meatpackers have not been able to fully access since 2003. China that year banned most U.S. beef imports partly due to concerns over “mad cow” disease.

Chinese poultry. The U.S. and China are to resolve outstanding issues for the import of China origin cooked poultry to the U.S. as soon as possible, and after reaching consensus, the U.S. is to publish a proposed rule by July 16, 2017, at the latest, with the U.S. realizing China poultry exports as soon as possible.

GMO products. China agreed to accelerate the process for approving U.S. biotechnology products. China agreed to convene its national biosafety committee by the end of May to evaluate eight pending biotechnology product applications, which have awaited approval from Chinese crop regulators. The Trump administration’s effort to hasten China’s regulatory reviews for genetically modified seeds follows years of complaints by crop developers about the country’s lengthy and opaque approval process.

Key USDA Positions Reportedly Set

Key USDA positions are set to be announced. Sources signal the possible new spots include:

Deputy Secretary: Steve Censky, currently CEO of the American Soybean Association, who worked at USDA in the Reagan and George H. Bush administrations.

Undersecretary for the new Farm Production and Conservation: Bill Northey, Iowa’s agriculture commissioner. The position includes overseeing the Farm Service Agency, Risk Management Agency and the Natural Resources Conservation Service.

Undersecretary for Trade and Foreign Agricultural Affairs: Ted McKinney, Indiana’s state agriculture director. He is close to Vice President Mike Pence and is a former director of global corporate affairs for Elanco Animal Health.

Washington Insider: Mexican Comment on NAFTA Trade Tensions

The U.S. Department of Commerce recently released a comment it received from the Government of Mexico. The letter is long, and quite academic and broad in nature. For example, it argues that the U.S. aggregate trade deficit is a poor measure of trade equity, since it is the result of low domestic U.S. saving rates and a persistent fiscal deficit.

It notes that in 2015, the U.S. Gross Savings as a percentage of GDP was 19%, significantly below the average of East Asia & Pacific countries (36%), the European Union (22%) and OECD members (22%). Moreover, it says, the U.S. has been running budget deficits for the past 15 years, with an annual average shortfall of 4.2% of GDP. None of the arguments are exactly new but they are current and presented forcefully.

They are especially interesting in view of the recent comments by the President regarding the importance of a chart highlighting impacts of potential changes in NAFTA on agricultural regions in the United States.

While the letter is somewhat heavy lifting with its historical detail, it clearly presents a positive view of the economic integration between the U.S. and other North American economies—integration, it believes, “has enabled the North American industry to increase its productivity and compete in world markets, benefitting workers, consumers and producers across the region.”

With regard to the issue of whether trading partners are imposing unequal burdens on, or unfairly discriminating against the United States, the comment notes that Mexico provides U.S. goods and services preferential treatment under NAFTA that extend beyond WTO principles of non-discriminatory, national, and most favored treatments and “which are supported by law and regulation.”

The letter also describes in detail the effect that the US-Mexico trade relationship under NAFTA has on production capacity in the region, and calls this relationship “critical” to the growth and success of different production sectors in the U.S.

As a result, Mexico is the 2nd largest importer per capita from the U.S. amongst the U.S. top 10 trading partners. On average, Mexicans buy from the U.S. twice the amount that Americans buy from Mexico.

The increasing integration of our economies makes Mexico critically important to the U.S. economy, not only as an export market, but also as a partner in production, the letter says.

NAFTA’s tariff elimination and clear rules have significantly intensified regional intra-industry trade, effectively tripling the trilateral trade, the letter said. Most of the products traded between our countries are inputs, components and parts used along a regional output chain to produce finished goods that are either consumed domestically or exported to global markets. Therefore, the free flow of goods between both countries has a positive effect on the competitiveness of the region, the letter asserts.

As a result, over the past 23 years, U.S. agricultural trade with Mexico has multiplied by six, surpassing $42 billion in 2016. Trade liberalization has also promoted a specialization of the type of agricultural products traded between Mexico and the US, taking advantage of the complementarity of the regional climate and geography. U.S. exports are concentrated in grains, meat, and oilseeds, accounting for over 50% of agricultural exports to Mexico.

In comparison, nearly 50% of Mexico’s agricultural exports to the U.S. are fruits and vegetables. The growth of trade in agricultural goods also has strengthened regional production chains, the letter says, including those concerning grains-meat, sugar-confectionary, malt-beer, lemon-pectin, fresh produce-canned food and cotton-textile and apparel.

In summary, the Mexican letter argues that the U.S.-Mexico bilateral trade relationship is rich, complex and has been strongly positive for both countries and their citizens. “Our trade relationship has created greater economic growth, a stronger manufacturing industry than would otherwise exist, and which has enabled the U.S. to increase its exports not only to Mexico, but to other countries as well, through the synergies created by the North American value chain.” It has also boosted the service sector and provided consumers in North America access to a larger set of high-quality products at better prices, the letter claims.

It will be interesting to see how the U.S. responds to this letter, or if it does. In fact, the recent debate on trade issues has been short on detail and long on assertions. Certainly, the details presented by the Mexicans will be disputed by anti-trade advocates, among others. However, the Mexican case is largely positive and so could have a positive impact on the ongoing debate, especially in internal discussions in Commerce, USDA and elsewhere, Washington Insider believes.

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