Tag Archives: Mexico

APPLES AND NAFTA

ABOUT THEM APPLES – PART II,
FROM GALA TO GRANNY SMITH

With NAFTA in doubt…

“[T]he health of the U.S. apple industry is hanging on a stem.”
Jim Bair
October 24, 2017 (on-line publication date).

Editor’s note. It has been almost three weeks since we published the last TTALK Quote on October 6. We apologize for the unexplained silence, but the TTALK Quotes aren’t dead. They were just sleeping.

Sauvie Island Apples rkm photo

CONTEXT

Our last entry focused on tomatoes or love apples, and it had been our intention to follow that with a quote about real apples, the kind that give us apple pie, cider, and a nice crunch when you bite into them. And then earlier this week, with an op- ed in The Wall Street Journal, the president of the U.S. Apple Association, Jim Bair, gave us this quote.

To say the least, Mr. Bair profoundly disagrees with President Trump’s assessment of NAFTA – you know, “worst trade deal ever made.” As Mr. Bair put it, “Our growers know it is the best apple trade deal to date.” Here are some of the numbers he provided:

$4 billion – the value of U.S. apple sales “at the farm gate,” i.e., wholesale;

$15 billion in related downstream activity.

We know you are going to read the article, but this paragraph deserves to be quoted here in full:

“Since the agreement took effect, the U.S. apple industry has quadrupled and doubled its exports to Mexico and Canada respectively. These top export markets bring $450 million in additional value to our growers and packers annually. In total, the U.S. apple industry exports a third of the 240 million bushels of apples it harvests each year.”

The Perishable Goods Provision. Mr. Blair kept his argument to the big picture. He talked about NAFTA as a whole and the consequences to his industry if the agreement were to go away, either through a U.S. withdrawal from NAFTA or through some other breakdown.

In our last entry, however, the one on tomatoes, we focused on a specific U.S. negotiating objective, namely this one on trade remedies and perishable goods:

“Seek a separate domestic industry provision for perishable and seasonal products in AD/CVD [antidumping and countervailing duty] proceedings.”

In doing so, we took note of the fact that Florida’s two senators, Senator Bill Nelson, a Democrat, and Senator Marco Rubio, a Republican, had written to Ambassador Lighthizer in support of just such a provision.

But what is good for Florida tomatoes is not so good for Northwest apples. On September 20, 2017, a sizeable subset of the Pacific Northwest delegation wrote to Ambassador Lighthizer urging him NOT to pursue a new provision for perishable and seasonal goods. They wrote:

“Given that there are serious, unresolved stakeholder concerns about the negative impact of such a provision on U.S. exports and jobs, we ask that you not move forward with this proposal.”

Much of the punch of their argument is contained in these sentences:

“[G]rowers, packers and shippers in the Pacific Northwest produce more than three quarters of the fresh apples and cherries, and approximately 84 percent of the fresh pears, grown in the United States. Mexico and Canada are the top export markets for apples and pears, with about 15 percent of the apple crop and 20 percent of the pear crop, worth approximately $442 million, shipped to our southern and northern neighbors each year.”

And this one:

“We expect that Canadian and Mexican industries, including the tree fruit industry, may take advantage of such a provision – [that is, the provision on seasonal and perishable goods that is now a tabled U.S. negotiating objective] – to restrict exports of U.S. products.”

There were 13 signatories to that letter, including –
From Oregon: Senator Jeffrey Merkley (D), Senator Ron Wyden (D), Rep. Kurt Schrader (D), and Rep. Greg Walden (R); and
From Washington: Senator Maria Cantwell (D), Senator Patty Murray (D), Rep. Denny Heck (R), Rep. Jaime Herrera Beutler (R), Rep. Suzan DelBene (D), Rep. Rick Larsen (D), Rep. Dan Newhouse (R), Rep. David Reichert (R), and Rep. Cathy McMorris Rodgers (R).

COMMENT

The items mentioned above can each stand alone. That said, we are likely to hear a great deal more about these and all of the other NAFTA issues in the months ahead. Even so, we are tempted to tack on four, somewhat disparate observations.

Retaliation. We have no quarrel with the letter to USTR from the members of the Northwest Delegation, certainly not with their concern that if the U.S. makes life more difficulty for, say, Mexican exporters of tomatoes, Northwest tree fruit exporters are bound to feel some countervailing pain. We suspect they are right. It is troubling however–not wrong but troubling – that so much of the discussion of possible NAFTA permutations hinges less on possible new provisions of law and more on a fundamental notion of practical reciprocity, an “eye-for-an-eye” sort of thing.

Perishable Products and the WTO. The WTO doesn’t get a lot of mention in today’s intense NAFTA discussions. It did come up, however, in a private conversation we had in the wake of our earlier reference to America’s NAFTA negotiating objective on perishable goods. The wise voice on the other end of the phone pointed out that, in its considerations of antidumping and countervailing duty issues, the WTO looks at annual trade. There is no provision for seasonal trade.

“Bilateral agreements should be WTO-plus,” our colleague said, meaning even more favorable to trade. “This would be WTO-minus.”

China. China may seem a non-sequitur in this discussion of North American trade. But when it comes to apples, China is the elephant in the room. According to a relatively current USDA estimate, the world will produce some 77.2 million tons of apples this year, more than half of them – 43.5 million tons — will be from China.  China is the world’s largest apple producer; the U.S. is number 2, with roughly 4.6 million tons.

Yes, China does buy a fair amount of apples from the U.S., but China’s exports here are growing – and if by here we mean North America – then you can add China to the list of countries that are eyeing the possible failure of NAFTA for new export opportunities for themselves.

Apples Nearby. Finally, a word about Sauvie Island , the apples pictured above and the trees below. They are hors de combat as far as this discussion is concerned, which is to say they are not exported. They are not even sold in grocery stores. These are pick-your-own apples from Douglas Farm on Sauvie Island. Just north of Portland, Sauvie Island on the Columbia River is one of America’s largest river islands and home to an array of farms, growing everything from corn to strawberries and apples to pears. The Douglas Farm is one of those and well worth a Sunday stroll if you are out this way.

At Douglas Farm, Sauvie Island rkm photo

SOURCES & LINKS

Is NAFTA Rotten is the op-ed the Wall Street Journal published on October 25 by Jim Bair, the president of the U.S. Apple Association, it argues that NAFTA has been important for U.S. apple growers and its demise would be a disaster. This was the source for today’s featured quote.

A Letter from the Pacific Northwest is a link to the September 20 letter mentioned above from members of the Oregon and Washington delegations, urging USTR not to pursue a new NAFTA provision on seasonal and perishable products.

U.S. Apples is the website of the U.S. Apple Association.

Negotiating Objectives takes you to the NAFTA negotiating objectives published by USTR earlier this year.

Delicious Fruit is a USDA estimate of apple production globally and in selected countries.

The Douglas Farm is a link to the website of the Douglas Farm on Sauvie Island.

Originally published on October 26 as TTALK Quote No. 61 of 217.

© 2017 Global Business Dialogue, Inc.

 

 

 

NAFTA’S TOMATO CHALLENGE

ABOUT THEM APPLES – PART I, LOVE APPLES

“Here in North Florida, tomato worship is our warm weather religion.”

Diane Roberts
July 26, 2009

CONTEXT

This  quote is from a charming NPR report on tomatoes by Diane Roberts that was published back in July of 2009. In fact, our thought had been to write something today (October 6)  about the other kind of apples, with varieties from Gala to Granny Smith, in a word, the real ones. That’s not to say that tomatoes are not real. They are. And there is a real enough connection these days between the two, as the U.S. growers of each stake out different positions in the NAFTA negotiations.

We’ll save our discussion of apples until next week. Today it’s tomatoes, starting with a little more from that delicious piece by Diane Roberts. In modern French, the word for tomato is la tomate, but the French used to call tomatoes pommes d’amour, apples of love. Discussing the history of these red goddesses of the kitchen, Ms. Roberts wrote:

“When the Spanish brought tomatoes to Europe in the 16th century, people didn’t know what to make of them: They might be poisonous. On the other hand, they might be some kind of aphrodisiac like the mandrake root.”

Then she brought her readers up to date:

“Here in North Florida, tomato worship is our warm-weather religion. Fields and farmers markets are piled high with tomatoes in the colors from amethyst to chartreuse, smelling of heaven; we eat them raw with a little rice vinegar, cooked in a tart or simmered in a sauce.” 

All very idyllic. And, we wouldn’t challenge a word of it – not visually, not aesthetically, and certainly not gastronomically.

Tomatoes and Trade Policy. When it comes to trade policy, however, there is an old controversy that may or may not ever be resolved, but it will certainly become more prominent in the months ahead. It is not just about tomatoes. Northwest berry growers have similar issues, but the Florida tomato growers are at the top of the vine, so to speak, when it comes to trade in perishable products.

Fearing increased competition from Mexico, they were opposed to NAFTA when it was being debated in Congress back in 1993, and they have not been happy with developments under the agreement since it went into effect in January 1994. An August article on the Stewart and Stewart website sets out the problems as American tomato producers and others see them. The firm also has something to say about how those problems might be solved. Some illustrative passages follow.

The Problem. Stewart and Stewart begin their explanation of the problem this way:

“Producers of perishables and seasonal agricultural products are particularly susceptible to damage from trade surges and various forms of unfair trade practices. If their products are forced to compete with dumped or subsidized product, or if import surges saturate the market either before or during a marketing season, domestic producers are unable to store their product and wait until prices rise to normal levels.

“Likewise, only a brief window – at times just days – exists in which to sell perishable products.”

And those aren’t the only problems. As the Stewart and Stewart article also points out, U.S. tomato growers often cannot even get the benefit of that famous downward sloping demand curve. They offered this explanation and example:

“The situation of producers of perishable and cyclical products is worsened as a concentrated retail structure in the United States and internal company operating procedures typically result in retailers not changing prices of perishable and cyclical prices at retail to reflect falling prices … .”

“In January 1996, prices of fresh tomatoes plummeted to as little as $0.04 per pound (from prices that more typically range from $0.25 to 0.40 per pound) at the farm level in the United States due to large volumes of imports from Mexico, while retail prices remained in the $1.00 to $1.80 per pound range.”

The NAFTA Renegotiation. The effort to come to agreement on a revised North American Free Trade Agreement would seem to be moving at a brisk pace. Three of the seven anticipated negotiating rounds have been completed, and the next one, the Fourth Round, is slated to be held next week (October 11-15 in Washington). We don’t know whether the negotiators have formally taken up the issue of perishable products or not, but it is a hot topic among the stakeholders.

More to the point, it is on the list of negotiating objectives that USTR published in July. It comes under the heading of Trade Remedies. The relevant sentence reads:

“Seek a separate domestic industry provision for perishable and seasonal products in AD/CVD [antidumping and countervailing duty] proceedings.”

Further, as those who favor such a provision are quick to point out, this particular U.S. negotiating objective flows directly from the law. That point was made recently by Florida’s two senators, Senator Bill Nelson (D) and Senator Marco Rubio (R). In a letter to Ambassador Lighthizer of August 31, they wrote:

“[W]e urge you to formally propose a NAFTA fix that would allow regional growers to use seasonal data for antidumping and countervailing duty (AD/CVD) cases.”

Pointing to the relevant law, they argued that:

“[A]ny agreement expecting fast track authority in Congress needs to meet the negotiating objectives set out in the Bipartisan Congressional Trade Priorities Accountability Act of 2015 (P.L. 114-26), including ‘eliminating practices that adversely affect trade in perishable or cyclical products, while improving import relief mechanisms to recognize the unique characteristics of perishable and cyclical agriculture.’

“Failure to meet these objectives would clearly not meet the standards Congress has set for trade agreements and would threaten the viability of a renegotiated NAFTA.”

COMMENT

We shall keep these comments short. We should note first that neither every industry nor every Member of Congress is on board with the U.S. negotiating objective cited above. Not at all. We’ll consider that issue more closely in the next entry when we take up the topic of North American apple trade. Apples aside, however, when it comes to North American agriculture, Mexico has a very strong hand to play, as it is the top export market for a range of U.S. commodities, including wheat, pork (by volume), and dairy.

The issues surrounding perishable products are complicated enough, and that complexity is but a small fraction of the complexity that is the full NAFTA renegotiating effort. We  have no idea how the entire exercise will play out, and we readily confess that our principal concern is not with any specific provision but with the whole. One way or another, we hope the negotiators find a way to preserve the principal features of the agreement.

Returning to perishable commodities, we’ll conclude with two separate thoughts. It is an open question as to whether USTR will be able to bring home the bacon on this one, that is, to satisfy its own negotiating objective. No country will get all it wants. But the ability to choose from a range of options would seem to increase the likelihood of success, and in that respect the article by Stewart and Stewart is helpful. They offer several ideas, from the changes in AD/CVD law mentioned above, to continent wide marketing orders, to self-initiation of certain cases by the U.S. Government.

Finally, there is politics. Heaven forbid that anyone should act out of political motives in this process, but Florida’s place in American politics is worth bearing in mind. It is the third largest U.S. state by population. The first is California with 39 million people. Next is Texas with almost 28 million. And then comes Florida with 20.6 million. Unquestionably, however, Florida is the number one, quintessential swing state. The significance of that would be hard to overstate. Its agricultural sector has just suffered devastating losses from Hurricane Irma, and in 2018 the state will elect a new governor and possibly a new Senator. (His long history and solid approval rating suggest that Senator Nelson, a Democrat, will hold on to his seat, but he will have to defend it.) So, it seems a fair guess that when the Florida delegation clears its throat, the Administration will pay attention.

SOURCES AND LINKS

Tomato Worship takes you to the 2009 NPR report that was the source for today’s featured quote.

The Problem of Perishables is a link to the Stewart and Stewart article cited above.

From the Florida Senators is a link to the August 31 letter to Ambassador Lighthizer from Florida’s two senators, Senator Bill Nelson and Senator Marco Rubio.

The NAFTA Negotiating Objectives as published by the Office of the U.S. Trade Representative on July 17, 2017.

Originally published on October 6, 2017 as TTALK Quote No. 60 of 2017

© 2017, Global Business Dialogue, Inc.

NAFTA WITHDRAWAL AND THE LAW — SOME QUESTIONS

THE IMPLEMENTING ACT

“Even if President Trump has the authority to trigger U.S. withdrawal from the NAFTA without formal congressional approval, it is unclear whether withdrawal would automatically terminate the North American Free Trade Agreement Implementation Act.”

White & Case Authors:
William Clinton, Scott S. Lincicome,
Brian Picone, Richard Eglin, and William Barrett

CONTEXT
On August 30, 2017, the above-named authors from the law firm  White & Case posted a paper on the firm’s website with the title “Termination or Modification of U.S. Trade Agreements.” In light of President Trump’s repeated threats to withdraw from the North American Free Trade Agreement and other trade deals, their paper could hardly be more timely, more important, or more provocative.

The paper deals with the full range of U.S. trade agreements, from U.S. membership in the World Trade Organization, to NAFTA, to bilateral agreements like KORUS, the U.S.-Korea Free Trade Agreement. While there are striking similarities in how the relevant laws handle the issue of withdrawal for different agreements, there are some significant differences as well. Over and above all the bits of legal language is the fact that “there is almost no precedent governing the legal provisions at issue here.”

The authors make that point in the very first paragraph of their paper, and they also make this one:

“[T]he provisions of these laws that govern potential U.S. withdrawal from FTAs do not expressly grant the President authority to withdraw from them.”

They further explain that:

“[E]ach U.S. trade agreement is actually governed by three different U.S. laws: the Trade Act of 1974; the specific version of TPA [Trade Promotion Authority] in effect at the time of the agreement’s implementation; and the act implementing the agreement’s specific commitments into U.S. law. In some cases, these laws contradict each other on the question at issue (e.g., tariff modification), thus raising significant questions regarding the proper statutory interpretation.”

You will want to read the full article for yourself. We’ll note here just one other observation from it. The White & Case authors have stated their uncertainty about the status of the act implementing NAFTA if the President were to withdraw from the agreement. We have made that today’s featured quote because we think it a question worth thinking about. It is also worth mentioning that the situation is somewhat clearer with respect to KORUS and other bilateral FTAs, because, as the White & Case paper explains, “the implementing acts state that the provisions set forth therein have no legal effect upon termination of the relevant FTA.”

COMMENT
Of course, if the U.S. pulling out of NAFTA is just a bit of scary rhetoric with no basis in reality, then maybe we can forget about the questions raised here. Or maybe not. Here we shall limit ourselves to the issues relating to NAFTA, leaving other agreements, such as KORUS and the WTO for another time.

Question No. 1.  Is it realistic to think that President Trump might decide to pull the United States out of NAFTA?  It is. He has often threatened to do just that, and the example of TPP suggests that such threats need to be taken seriously. We hasten to add that TPP was a negotiation, not a ratified or implemented agreement, but its history is still worth noting.

More to the point, people much closer to the negotiations than your editor are clearly worried. That came through loud and clear in the compelling op-ed article in yesterday’s Wall Street Journal by Thomas Donohue, the president and CEO of the U.S. Chamber of Commerce. “This vision [of a NAFTA pull-out by the U.S.] isn’t so far-fetched when you consider the increasingly precarious state of play in the effort to modernize the North American Free Trade Agreement,” he wrote.

In the same piece, Mr. Donohue argued that “Quitting NAFTA would be an economic, political, and national-security disaster.”

Question No. 2. Does the President have the authority to pull out of NAFTA? Yes and maybe. Clearly the President thinks he has that authority, and, for the most part, the world agrees. Even Mr. Donohue said that pulling out “is within the White House’s authority.” That is not to say, however, that, if the President were to formally take the United States out of NAFTA, there wouldn’t be legal challenges to that action. Almost certainly, there would be, and in today fractious judicial environment it is hard to say how those challenges would play out.

Question No. 3. What will Congress do? At some point, Congress will do something. The 2016 election and the current drama over NAFTA and KORUS have challenged the assumptions that underpin an array of statutes. Politically, they beg the question, does it really make sense to legislate in the belief that a free-trade oriented Executive will always face a parochial and protectionist Congress? More fundamentally, these current developments pose a Constitutional challenge. If the President can undo major trading arrangements with the stroke of a pen, arrangements that are sanctified by Congress, codified in law, and that affect the lives of millions, does Congress really have the power “to regulate Commerce with foreign nations?”

To our knowledge no Congressional leader has forcefully confronted that issue head on. Not yet.  And there may be wisdom in that.  It doesn’t really make sense for Congress to take away the President’s leverage in the middle of a negotiation.

In the wake of a U.S. withdrawal from NAFTA, however, the issue would come to the fore quickly.  In the absence of such a withdrawal, on the other hand, all of this will remain largely academic,
with this exception.  The next time Congress writes a trade bill, our guess is that they will put some fresh thinking into the issues associated with getting out of it. And we may not have long to wait. After all, the current NAFTA negotiations might be successful.  We hope they are.  And the fruits of those negotiations might need an implementing bill. Opportunity awaits.

SOURCES & LINKS
The White and Case article  that was the starting point for this posting may not be current available on line.

Exiting Would be a Rotten Deal is the op-ed by Thomas Donohue mentioned above.

NAFTA and the President’s Promise is a link to the TTALK Quote for July 19, 2017, which focused on America’s negotiating objectives for the negotiations now underway to revise the North American Free Trade Agreement.

Originally published on September 26 as TTALK No. 59 of 2017.

© 2017, The Global Business Dialogue, Inc.

U.S. NAFTA GOALS

A CONJECTURE

“We want to claim or reclaim some manufacturing employment that has settled itself in Mexico.”

John Magnus
June 23, 2017

CONTEXT

Like our last entry,  today’s is from the preliminary comments made by TradeWins president, John Magnus, acting as a panel moderator at GBD’s June 23 event. Earlier we shared with you his thumbnail estimation of the U.S. trade posture towards the European Union. He offered similar comments on America’s apparent goals for a revised NAFTA. The first round of NAFTA renegotiation got under way in Washington yesterday [June 16], beginning with a fairly challenging opening statement from the U.S. Trade Representative, Ambassador Robert Lighthizer. We shall turn to that in a moment.

First, though, this is as good a time as any to review the assessment that John Magnus offered back in June. “Okay, what about NAFT?,” he asked. These points were his answer:

Content, Rules of Origin. “We apparently would like to wring out non-North American content as fully as possible from the goods that have NAFTA eligibility.”

Jobs. “We want to claim or reclaim some manufacturing employment that has settled itself in Mexico.”

Trade Deficits. “And we would like to have a smaller, bilateral merchandize trade deficit with Mexico.”

Dairy. “We want to extract concession from Canada on some offensive issues, most notably dairy trade. I’ll let you decide what the word offensive modifies in all of that. It could be our behavior in relation to dairy trade.”

Investment and Trade Remedies. “We want to overhaul some of the NAFTA’s institutional provisions and dispute resolution provisions and most notably the ones that sit in chapters 19 and 11”.

Government Procurement. “We want to really have a new or continue our new mania for Buy American, meaning that we want to, apparently, refrain from deepening the NAFTA in regard to government procurement. And that matters because our NAFTA partners have some interesting requests and proposals in that category.”

The Cases. “And we seem to want to continue to treat even the highest profile trade remedy proceedings – examples: softwood lumber for Canada, sugar for Mexico – as basically matters of pure law enforcement as opposed to some part of our trade policy that we would be prepared to bargain over.”

COMMENT

Doubtless you have already read or read about Ambassador Lighthizer’s opening statement yesterday. Certainly, it was important, but its importance is bound to fade somewhat as the negotiations — and all that is said and written about them — move on to specific issues. But while it is still fresh, here are a few thoughts on the statement and on the negotiations now in their second day.

First, of course it was a tough statement. It had to be. It was the United States that called for these negotiations, and in a sense that was a fallback from President Trump’s threat to withdraw from NAFTA, to tear it up. And the essential toughness of the statement was in this paragraph:

“The views of the President about NAFTA, which I completely share, are well known. I want to be clear that he is not interested in a mere tweaking of a few provisions and an a couple of updated chapters. We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement.”

That was near the end of his statement. The beginning was somewhat different. There he talked about the many Americans who have benefited from NAFTA. “For many of our farmers and ranchers,” he said, “Canada and Mexico are their largest export markets.” And, he added, “Many are particularly vulnerable today because of low commodity prices.”

***

In short, at least as we read it, it was a tough speech with a major concession: America too needs NAFTA. Yes, there is some leverage in the belief if not the fact that the other two, Canada and Mexico, need NAFTA more. But America needs it. Think of NAFTA as a leaky lifeboat in an unforgiving sea. It’s three occupants — Canada, Mexico, and the United States — may have, will have, trouble agreeing on the best way to patch it. But agree they must. Scuttling it is unthinkable (or should be).

Much as we would like to end on that rhetorical flourish, it doesn’t quite capture the larger point. NAFTA may have been a mistake. A better set of policies set in motion in the 1990s might have preserved more U.S. manufacturing jobs and led to a stronger U.S. industrial base. The challenge for today’s NAFTA negotiators, however, isn’t to rewrite the 1990s. That can’t be done. Their challenge it is to improve a system that is now deeply embedded in the economies of all three countries and to do so without disrupting the lives and livelihoods of those who have successfully adapted to it.

SOURCES & LINKS

An Educated Guess is a link to the YouTube video of the Diplomatic Panel at the GBD EU Outreach event on June. This was the source of today’s featured quote.

Opening Statement takes you to Ambassador Lighthizer opening statement at the start of the first round of negotiations toward and an updated and revised NAFTA.

Objectives is a link the U.S. negotiating objectives for the new NAFTA negotiations, which USTR published on July 17, 2017.

About Dairy is the TTALK Quote for June 14, 2017, which focuses on the issue dairy in U.S.-Canada trade, beginning with comments from Shawna Morris of the U.S. Dairy Export Council.

Originally published on Augusut 17 as TTALK Quote No. 51 of 2017.

© 2017 The Global Business Dialogue, Inc.

 

NAFTA AND THE U.S. PORK INDUSTRY

AMERICAN PORK: AN EXPORT POWERHOUSE

“The U.S. pork industry is the poster child for expanded trade.”

Nicholas D. Giordano
May 25, 2017

CONTEXT AND COMMENT

Nick Giordano is the Vice President and Counsel for Global Affairs at the National Pork Producers Council. He was the last of nine speakers at the GBD NAFTA event on May 25, NAFTA, From Car to Carrots. As we noted in the TTALK Quote published earlier today, the fear that the United States might withdraw or otherwise scrap NAFTA has lessened in the last couple of months.

That is a welcome development. So too is the clear and steady movement toward an orderly process of renegotiating and upgrading NAFTA. The most recent step in that process was taken earlier today [July 19, 2017] when USTR announced that John Melle, Assistant USTR for the Western Hemisphere, will be America’s Chief Negotiator for the NAFTA negotiations and that the first round of talks will be held in Washington from August 16 to August 20.

As the NAFTA countries prepare for that first round, it is important to keep in mind that, as important as NAFTA is for the United States, it is as or more important for Canada and Mexico. Each of the three NAFTA countries has an enormous stake in NAFTA and in the success of the NAFTA negotiations.

That said, the picture Nick Giordano painted back in May of NAFTA and the U.S. pork industry was an exceptionally useful illustration of that point from the perspective of one segment of the North American economy, American pork producers. After transcribing his remarks, we could not decide what to include and what to cut. So here in its entirety is the speech Mr. Giordano gave at GBD on May 25. (The inserted headlines and added emphases are ours.)

REMARKS OF NICK GIORDANO — MAY 25, 2017

Thank you, Dave.* Thanks to Judge and the Global Business Dialogue* for having the National Pork Producers Council participate in this important event. It’s a great pleasure to be up here with my colleagues from agriculture, who I’ve gotten the opportunity to work with on various issues over the years.

As David knows, I’ve never met a microphone I didn’t like. Don’t worry. I’m going to make your job easy. I’ve written my comments out. So, I can keep us on schedule here. So we can get to questions and Judge can get everybody out in a timely manner.

ON THE COUNCIL
The National Pork Producers Council is a federation of 43 state pork producer organizations, representing the national, global interests of 60,000 U.S. pork producers, who generate $23 billion annually in farmgate sales. The U.S. pork industry supports an estimated 550,000 domestic jobs and generates more than $39 billion a year in economic activity.

U.S. PORK EXPORTS
The U.S. pork industry is the poster child for expanded trade. As recently as 1995, the United States imported more pork than it exported. But, in the past ten years, thanks to new market access through trade deals going back … before NAFTA — the U.S. pork industry, on average, has been, the past ten years, the top pork exporting nation in the word.

In any given year, we ship pork to more than 100 countries. But, because of trade deals, and specifically FTAs, we ship more U.S. pork to the twenty nations with which we have FTAs than to the rest of the world combined. Exports contribute significantly to the bottom line of all U.S. pork producers, adding more than $50 to the value of each hog marketed last year, when about $6 billion worth of U.S. pork was exported.

It’s been noted [that] on May 18th, the Administration notified the Congress of its intention to enter into negotiations with Mexico and Canada to modernize the NAFTA. Today, NPPC [the National Pork Producers Council] released a paper on the NAFTA. The paper is intended to provide background and insights regarding benefits generated by the NAFTA.

In addition, the paper details the costs associated with erecting new import barriers through renegotiation or withdrawal from the NAFTA. The paper is available on our website, nppc.org. The focus of the paper is economy wide, but today I’ll limit my comments, for the most part, to the pork sector. Mexico and Canada represent, in value terms, our second and third largest export markets for pork.

In 2016, we shipped $1.4 billion in pork products to Mexico and $800 million to Canada. Together, these two markets represent 36 percent of our global pork exports and over 15 percent of our total pork production.

THE NAFTA RISKS
According to Iowa State University economist Dermot Hayes, who Judge has had as a panelist in past GBD activities, U.S. pork exports to Mexico have created more than 9,000 U.S. jobs. Dr. Hayes, who, I might add, has forgotten more about the global pork industry than most people will ever know. According to Hayes, if Mexico were to place a 20 percent duty on our pork, and allowed the EU and Canadian pork duty free access, which is likely to happen if there is a termination or duties put on pork, then we would — the United States — would lose all of the Mexican market.

In his assessment, Professor Hayes also looked at the possibility of U.S. pork finding alternative markets and concluded that the U.S. pork industry would be left with a net loss of about 600,000 tons or 5 percent of our production. This would cause a 10 percent reduction in live hog prices. At today’s hog prices, that’s about $14 per animal. Now, with 118.3 million hogs harvested in the United States last year, that means the loss of the Mexican market would translate to an aggregate industry loss of about $1.7 billion annually.

A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Now, make no mistake, pork producers do and will support updating and improving the NAFTA but if, and only if, duties on U.S. pork remain at zero and pork exports are not disrupted. The prospects of going back to pre-NAFTA tariffs are daunting, not just for pork producers but for the entire U.S. economy. And we have history as our guide.

LESSON FROM HISTORY
After the stock market crash in October 1929, when unemployment began to rise, Congress decided it would be a good idea to impose additional tariffs on imports “to save jobs.” Despite the pleas of over 1,000 mainstream economists for President Hoover to veto the bill, the so-called Smoot-Hawley tariffs were introduced in 1930. Jobs were immediately lost in trade related fields and beyond, including dock workers, transportation, distribution etc. And within three months, unemployment nearly doubled to 14 percent. Over the next two years, unemployment soared to 27 percent, as jobs were lost to other factors, including higher inflation, reduced disposable income, and, of course, foreign retaliation against our exports. The Great Depression was then in full force, and became global. The rest, as they say, is history.

COSTS OF FAILURE
Now, I’m not suggesting that a NAFTA renegotiation gone awry would result in another great depression, but it could result in unintended consequences. Mexico will elect a new president in July 2018. The NAFTA renegotiation could have a significant impact on both the presidential election in Mexico and the long term relationship between our two nations. The NAFTA has created jobs to the benefit of both the United States and Mexico. In 1994 our trade with Mexico was roughly in balance at about $50 billion each way. By 2016, our exports to Mexico had nearly quintupled to $231 billion, and these now support some 6 million jobs.

And while imports to the United States from Mexico were $294 billion, those too supported millions of U.S. jobs, and nearly 40 percent of Mexican imports include U.S. content. In short, NAFTA created jobs in both the United States and Mexico. Now, I won’t deny that jobs did go to Mexico as the result of plant closings, but it’s misleading to say that trade under NAFTA resulted in a net loss of jobs in the United States.

We should also keep in mind that as a result of NAFTA, Mexico made substantially deeper cuts in tariffs on U.S. goods than did the U.S. on Mexican goods. If NAFTA were to be terminated, Mexico would have the right to reimpose those much higher tariffs on our goods, thus making the trade deficit bigger.

Mexico has free-trade agreements with many other countries and is pursuing even more. Without NAFTA, those countries would immediately secure huge competitive advantages over potentially thousands of U.S. products, including pork of course, in the Mexican market.

NAFTA is an old trade agreement–23 years. But it has accomplished a great deal. And, it certainly can be modernized. But, if I’m making one point [and] you’ve been listening, there are enormous risks associated with the notion that withdrawal from NAFTA could be an attractive alternative if efforts to negotiate a more modern agreement fail. Thank you.

NOTES, SOURCES AND LINKS

*On Referenced Personalities. Dave Salmonsen of the American Farm Bureau Federation served as moderator for the panel discussion on agriculture. Judge Morris is the president of the Global Business Dialogue, which hosted the event.

The Carrots Part takes you to the YouTube video of the full agriculture panel at GBD’s May 25 event on NAFTA. This was the source of today’s featured quote and the above transcript.

First Round Announced is a link to today’s USTR press release, which included both the dates for the first round of negotiations and the name of the U.S. Chief Negotiator for the NAFTA talks, namely, John Melle.

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Originally published on July 19, 2017, as TTALK Quote No. 44 of 2017.