Washington Insider -- Monday

Why Some Farmers Hate NAFTA

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

Canada May Sue US If Softwood Lumber Talks Collapse

Canada’s Ambassador to the U.S., David MacNaughton, said last week there's a willingness in Canada to sue the U.S. if trade talks over softwood lumber fail to reach an agreement.

The U.S. has “mischaracterized” what Canada has proposed in terms of defined market share, MacNaughton said. The only qualification Canada wants for defined market share is that the country can supply excess lumber to the U.S. in the event that American suppliers cannot meet domestic demand fully, he argued.

"What we can’t understand is why is it that some elements of the U.S. lumber industry would rather see imports from countries like Russia rather than their closest ally and friend, Canada,' MacNaughton said. "We’re going to try really hard in the next little while to get a fair and balanced agreement. If that is not possible, we have all agreed that we will take all necessary steps to litigate this matter."

The U.S. is importing more softwood lumber after imposing tariffs on Canadian supplies, making them more expensive. Russian shipments are 42% higher in 2017, according to U.S. government data. In October, Chrystia Freeland, Canada’s trade minister, said the country will bring the U.S. tariffs before the World Trade Organization (WTO) if negotiations fail.

The U.S. is Canada’s top buyer of softwood lumber. The industry provides jobs in many Canadian communities, and often the sawmill is the only company in many of those towns, MacNaughton noted.

Business Groups Urge Preservation of ISDS System in NAFTA Talks

North American Free Trade Agreement (NAFTA) renegotiations should keep investor-state dispute settlement (ISDS) provisions or risk undermining business support, three major business groups said.

The Business Roundtable, National Association of Manufacturers, and U.S. Chamber of Commerce sent the August 23 letter against the backdrop of the Office of the U.S. Trade Representative (USTR) discussing a mechanism that would allow NAFTA countries to “opt-in” or “opt-out” of the ISDS system.

The ISDS proposal is in the concept stage and the U.S. did not offer any language on ISDS at the August 16-20 inaugural NAFTA round, a business community source told Bloomberg BNA on background August 24. "This is a moving target," a source said, speculating that the U.S. would not be offering investment language at the next NAFTA round starting Sept. 1.

"Attempts to eliminate or weaken ISDS will harm American businesses and workers and, as a consequence, will serve to undermine business community support for the NAFTA modernization negotiations," the business groups wrote in a letter to top administration officials, including USTR Robert Lighthizer and Commerce Secretary Wilbur Ross.

Under ISDS, companies can bring governments before arbitration panels and get damage awards if the arbitrators find that the government breached investment guarantees. ISDS provisions are contained in NAFTA Chapter 11.

Washington Insider: Why Some Farmers Hate NAFTA

It is often said that ag producers’ concerns about trade negotiation focus on protecting trade deals now in place under NAFTA. However, Bloomberg is reporting this week that as U.S. trade representatives begin to renegotiate NAFTA, fruit and vegetable farmers in the Southeast have emerged as a staunch component of the anti-free-trade movement.

That’s put them at odds with much of U.S. agriculture, which has long been one of the biggest advocates of NAFTA. Since 1994, the year the agreement went into effect, exports of staple crops such as corn, soybeans, and wheat have more than quadrupled.

At the same time, outside the Midwestern Grain Belt, NAFTA sometimes means increased competition, especially for seasonal producers, such as fruit and vegetable farmers. So, Florida has emerged as the epicenter of anti-NAFTA sentiment in U.S. agriculture.

Located farther south than California, which is the main U.S. source of fresh produce, Florida made year-round fruits and vegetables possible in U.S. grocery stores. “There were times of the year when Florida vegetables fed the whole nation,” claims Reggie Brown, executive vice president of the Florida Tomato Exchange, a grower group. “Everyone else has a frost. We can still produce.”

Increasingly, though, the fruits and vegetables Americans buy come from Mexico, not Florida. While annual U.S. tomato consumption has risen 61% since 1994, to 6.9 billion pounds, domestic production has fallen 11%, to 3.2 billion pounds.

Meanwhile, tomato imports from Mexico have quadrupled, to 3.57 billion pounds, and strawberry imports have risen sixfold, to 568 million pounds. This competition is being accused of causing a “rash of fruit and vegetable farm bankruptcies across Florida,” Bloomberg says.

Mexico’s lower labor costs are seen as a major concern for Florida producers. Unlike an Illinois corn farmer with a mechanized operation, some 500 fieldworkers are needed to pick 600 acres of tomatoes by hand. Says Brown: “I understand that people will say if Mexico can grow it cheaper, let them produce it. But there are small towns depending on this, and as an American, that is my first and foremost concern.”

It’s not only labor costs that make it cheaper to grow fruit in Mexico. Pesticide rules also differ, and some say that provides another competitive disadvantage for Florida farmers. When people think of farming, they think of corn and soybeans. “People have no idea what it takes to get a tomato on a grocery shelf. [Corn] farmers have a whole different set of interests, and that’s why we end up on the outside of this debate,” tomato growers argue.

Florida growers have a list of demands they’d like a new trade deal to address, including quotas on Mexican imports, aligning Mexico’s food safety and environmental rules with the U.S., raising wages for Mexican workers, and demanding the country cut its farm subsidies.

Mexico’s government says wages are off the table and that the nation has always cooperated with the U.S. on food safety issues. “Attempting to restrict Mexican imports to the U.S. market through managed trade schemes [is] totally rejected by Mexico,” said Raul Urteaga Trani, general coordinator of international affairs for Mexico’s agriculture ministry.

Still, the last thing U.S. farm lobbyists want is for Florida’s problems to hold up a NAFTA renegotiation or to change the status quo too much, Bloomberg says. Mexico has become the top buyer of U.S. corn, by far the most valuable crop in the U.S.

Although farm groups would like any new trade deal to be reached quickly, they acknowledge the concerns of Florida growers. “We do have a problem in Florida,” says Zippy Duvall, president of the American Farm Bureau Federation, the biggest U.S. farmer group. But he says the state’s issues have to be balanced with the interests of the rest of the country.

Florida farmers’ strongest ally may be President Trump. As NAFTA negotiations kicked off on Aug. 16, U.S. Trade Representative Robert Lighthizer said Trump isn’t looking for “a mere tweaking of a few provisions” and that “NAFTA has fundamentally failed many Americans and needs major improvements.”

The President’s NAFTA focus has been on American manufacturing jobs, largely in the U.S. Rust Belt, but Florida’s status as a crucial swing state may help its farmers get his attention. Their plight has taken on more political importance in the state, particularly as Florida’s agriculture commissioner, Adam Putnam, has emerged as the front-runner for Florida’s Republican nomination for governor in 2018. Putnam, who advised Mitt Romney on trade and agriculture issues during his 2012 presidential campaign, has taken Mexico to task for the alleged dumping of fruits and vegetables in the U.S.

Now, Florida growers are watching the NAFTA debates as closely as the weather forecast. They claim Florida is “tomato country” and that they will keep fighting NAFTA as hard as we can until we can’t do it anymore.

So, it will be important to see how the need for balance among issues is defined as the talks proceed. To date, the debate has most frequently been defined in terms of politics, with relatively little attention to specific changes in rules that are needed. It will be important for producers to watch this process very closely as it proceeds, Washington Insider believes.

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