NAFTA Pains

Ag Groups Point to Opportunities, Risks in Renegotiating NAFTA

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Agriculture groups voice concerns about renegotiating the North American Free Trade Agreement. (DTN Graphic)

OMAHA (DTN) -- While "do no harm" has been the battle cry from agriculture groups over the Trump administration's plans to renegotiate the North American Free Trade Agreement, one grains industry representative told Congress on Wednesday that damage already may have been inflicted.

The House Committee on Agriculture questioned a variety of agriculture industry representatives as to what a renegotiated NAFTA should include.

Floyd D. Gaibler, director of trade policy and biotechnology for the U.S. Grains Council, told the committee that since President Donald Trump announced NAFTA would be renegotiated, the Mexican corn market has taken hits.

"The recent furor of the proposed executive order to withdraw from NAFTA has prompted the Mexican government to look to Brazil and Argentina for alternative sources of corn and other grain products," Gaibler said in his written testimony.

"We have strong but unconfirmed evidence that Mexico is slated to purchase between seven and eight cargoes of corn from South America beginning in August and September. Given the political uncertainty, our customers have told us that rather than continue to (use) future positions for grain purchase -- a strategy key to mitigating price risk to purchase corn and co-products -- they will resort to the more volatile and risky spot market."

He said the decisions have led to a 4% decline in corn exports since the beginning of 2017 when compared to 2016.

"We expect further erosion if the shipments from South America materialize as we anticipate," Gaibler said. "The results demonstrate that the U.S. feed grain industry has the potential to realize gains from improved terms in a modernization of NAFTA, with Mexico a more significant contributor to those benefits than Canada."

With a renegotiated NAFTA, Gaibler said, the majority of the increase in U.S. corn exports to Canada and Mexico comes from value-added products from livestock and other foods.

"Conversely, if the negotiations fail and we quit NAFTA, it is unclear what specific future polices would be chosen," Gaibler said. "But one assumption is that all three North American countries would end all North American preferences."

National Cattlemen's Beef Association CEO Kendal Frazier said the beef industry is more concerned about not losing gains in trade with NAFTA partners.

"Quite frankly, it is difficult to improve upon duty-free, unlimited access to Canada and Mexico, and we are pleased to see the Office of the U.S. Trade Representative announce its support for continued reciprocal duty-free access," Frazier told the committee.

"Even still, our message remains the same: Please do no harm and do not jeopardize our access."

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On average, Frazier said, Canada and Mexico have been two of America's top five export markets for beef at about $1 billion each in annual sales.

In addition, Frazier told the committee how mandatory country-of-origin labeling, or COOL, hurt producers when it was tried.

"We must learn from the mistakes of the past and not repeat them," he said. "We encourage you to build on the success that current NAFTA provisions have given U.S. beef producers."

Thomas A. Hammer, president of the National Oilseed Processors Association, said that while his industry wants a future NAFTA to maintain gains achieved, there is a need to include a new chapter on biotechnology.

That would include entering into an agreement with Canada and Mexico on the safety determination of biotech crops intended for food, feed and processing, he said.

REFORMS NEEDED

Representatives from a variety of other agriculture sectors told the committee there is a need to make changes to NAFTA.

Tom Vilsack, former U.S. secretary of agriculture and current president and CEO of the U.S. Dairy Export Council, said U.S. negotiators need to move fast to resolve problems with dairy access to Canada's markets.

"Canada's exorbitant dairy tariffs are well known," he said. "Over-quota tariffs top the charts at 241% for fluid milk, 201% for skim milk powder, 298% for butter and 245% for cheese. Among the developed world, only the island nation of Japan, in addition to countries such as Norway and Switzerland, have maintained similar dairy fortress walls with the U.S.

"Under NAFTA, many are aware of the unfortunate fact that U.S. dairy exports are one of the very few sectors that do not enjoy duty-free access to the Canadian market," Vilsack said.

Vilsack said NAFTA has benefitted the U.S. dairy industry "enormously" when it comes to liberating trade with Mexico. Mexico has grown into the largest export market for U.S. dairy.

"Canada unfortunately has created a dairy trade relationship with the United States that can best be described as heavily strained," he said.

Additionally, Vilsack said that, earlier this year, Canada set a new pricing scheme that "essentially wiped out" an export market for ultra-filtered milk.

"Canada argues that they import large quantities of U.S. dairy product," he said. "However, what Canada is not transparent about is how these imports are coming under a report program that forces the equivalent amount of dairy coming into Canada to be re-exported in many cases back to the United States."

In addition, Vilsack told the committee that Canada works to "undermine" international agreements such as NAFTA by accepting trade-limiting geographic cheese names.

"In short, the United States has a tremendous amount of unfinished business with Canada with respect to NAFTA," he said.

Kevin J. Brosch, representing the National Chicken Council, National Turkey Federation and USA Poultry and Egg Export Council, said NAFTA could be clarified further to better state the U.S. position overall.

"While the United States government and the U.S. dairy and poultry industries believed that there would be free trade under NAFTA in virtually all products, Canada considered that NAFTA allowed Canada to restrict imports in these products to accommodate its domestic supply control regimes," he said.

"As a result, the U.S. poultry industry has enjoyed much more limited access to the Canadian market over the past two decades than most all other sectors."

Rep. K. Michael Conaway, R-Texas, and chairman of the committee, said renegotiating NAFTA could be beneficial to all sectors.

"While I recognize there is a level of angst about renegotiating an agreement that has provided so many hard-fought gains, our nation stands to benefit from renegotiating a deal that provides additional market access and tightens trade enforcement," he said.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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Todd Neeley