Washington Insider -- Friday

Benefits of NAFTA

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

US Cabinet Officials: Farm Exports a Priority in NAFTA

Both U.S. Trade Representative Robert Lighthizer and USDA Secretary Sonny Perdue emphasized that the Trump administration has no intention of jeopardizing U.S. agricultural exports to Canada and Mexico, noting they have specific marching orders to protect current market access for U.S. farm products.

“Ag is a big winner from NAFTA and a lot of these agreements. We have to maintain that position,” Lighthizer said.

While the Trump administration is interested in negotiating new bilaterals, Lighthizer acknowledged that none of the 11 remaining TPP members have come forward to say that they want a one-on-one trade agreement with the U.S. "But everybody wants to engage,” Lighthizer said after he and Perdue emerged from a closed-door meeting with House Agriculture Committee members.

Lighthizer was upbeat about the prospect of eventually negotiating one-on-one deals despite the lukewarm response to the administration’s desire to do so. “We have the biggest economy in the world. We have something we’re offering to people so I’m confident that people will want to talk about our bilateral relationship,” Lighthizer said. “We’ll have FTAs and agriculture will be front and center of every one of them, I’m confident.”

After President Donald Trump’s threats to pull out of NAFTA, Mexico started exploring other markets to buy corn and other crops from other countries, including Brazil and Argentina. House Agriculture Chairman Mike Conaway, R-Texas, said he met with producers from Mexico who import US corn last week and reassured them that the relationship is still on solid ground. He also had a meeting with Mexico’s ambassador to the U.S. Geronimo Gutierrez, on Tuesday. “They all want to buy our corn,” Conaway said. “With respect to Canada and Mexico, we have a geographical advantage over anyone else in the world.”

Conaway also said he has three main messages for the Trump administration officials: Do no harm to in the NAFTA renegotiations; push aggressively to tear down Canada’s dairy trade barriers and begin negotiating bilateral deals with members of the Trans-Pacific Partnership (TPP), since President Donald Trump decided to pull out of that pact.

USDA Lawyers Continue to Say No to Cotton Farm Program Change

USDA Secretary Sonny Perdue told House agriculture appropriators that he is unlikely to make cottonseed eligible for the farm bill’s Price Loss Coverage (PLC) program.

Perdue told Rep. Steven Palazzo, R-Miss., that USDA’s general counsel has not budged from its position that the secretary lacks the legal authority to declare cottonseed as an “other oilseed” eligible for PLC.

Perdue said there would be budgetary problems as well with the request.

Washington Insider: Benefits of NAFTA

The agricultural sector is deeply worried these days about potential market losses from trade policy changes under discussion in some quarters. For example, Informa Economics is reporting this week about a white paper produced by the National Pork Producers Council that digs deeply into possible implications of such policies.

Informa says that following last week’s notification by the administration that it will renegotiate NAFTA, the pork producers released a detailed white paper on the benefits of the trade deal among the United States, Canada and Mexico.

The paper focuses primarily on trade with Mexico and makes a case for not abandoning the 23-year-old pact. It says the deal has worked well for a number of products including U.S. pork. Mexico is the number-two export market for U.S. pork, and Canada is the fourth largest market.

For all U.S. goods and services, Canada and Mexico are the top two destinations, accounting for more than one-third of total U.S. exports, adding $80 billion to the U.S. economy and supporting more than 14 million American jobs.

The paper emphasizes two “key facts.” While considerable attention has been given to the $63 billion trade deficit the U.S. has with Mexico, when NAFTA took effect in 1994, trade between the U.S. and Mexico was only $50 billion each way. Last year, U.S. exports to Mexico were nearly quintuple that amount at $231 billion and supported 5 million U.S. jobs.

The paper also notes a lesser known fact — that while imports to the U.S. from Mexico were $294 billion, those, too, supported millions of U.S. jobs since nearly 40% of Mexican imports include U.S. content.

For U.S. agriculture, Canada and Mexico are the second and third largest foreign markets. Those countries imported more than $38 billion of U.S. products in 2016; 28% of all U.S. agricultural exports. These sales generated more than $48 billion in additional business activity throughout the economy and supported nearly 287,000 jobs.

A major focus of the paper is the impact of disrupting the Mexican and Canadian markets, which the NPPC believes “would have devastating consequences for America’s farmers and for the U.S. processing and transportation industries.” U.S. pork producers would be particularly hard hit, the paper says.

In fact, Informa notes that Iowa State University economist Dermot Hayes has calculated that if Mexico placed a 20% duty on U.S. pork – a likely response to a U.S. withdrawal from NAFTA – and allowed other countries duty-free access, the U.S. pork industry eventually would lose the entire Mexican market.

That would mean a loss of 5 percent of U.S. pork production which likely would reduce the U.S. live hog market by 10% at a cost of $14 per hog, or a nearly $1.7 billion aggregate loss to the industry.

“A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry,” Nick Giordano, NPPC’s vice president for global government affairs, told a panel discussion hosted by the Global Business Dialogue this week. “Pork producers will support updating and improving NAFTA but only if duties on U.S. pork remain at zero and pork exports are not disrupted.”

The NPPC paper also describes significant NAFTA benefits beyond trade, including improved relations with Canada and Mexico, better regional investment and supply chains, increased cooperation with Mexico in fighting drug trafficking and terrorism and greater political stability in that country.

Overall, there seems to be some reduction in intensity in efforts to make fundamental changes in NAFTA, especially as it affects agricultural sales which generally reflect competitive, open markets across the region and which, by the way, tend to return a favorable balance of payments for the United States. However, there have been comments on proposed policies by non-ag administration officials that reflect very little understanding of either these markets or how they work and which could lead to disruptive misunderstandings and market losses. The NPPC message is that key NAFTA participants have options and if those are misunderstood, that could mean unfavorable outcomes for the U.S. ag sector.

It also is clear that Secretary Perdue and members of the House and Senate ag committees understand this very well and that they likely will use the NPPC paper to bolster arguments in the continuing trade fight—an important battle for producers that should be watched closely as it proceeds.

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