NAFTA AND AMERICAN AGRICULTURE, PART II

DAIRY AND THE NEXT NAFTA

“Our NAFTA modernization goal, when it comes to dairy, would be Maintain Mexico and crack Canada.”

Shawna Morris
May 25, 2017

Shawna Morris is Vice President for Trade Policy at the U.S. Dairy Export Council and holds the same position with the National Milk Producers Federation. Speaking at GBD’s May NAFTA event, Ms. Morris painted two dramatically different pictures of NAFTA as seen through the eyes of America’s dairy farmers and processors. We shall share some of what Ms. Morris had to say about both of America’s continental trading partners, but the first point to note is what she had to say about NAFTA itself.

Ms. Morris described the dairy sector as one of NAFTA’s biggest supporters, adding that her members “have absolutely no interest in doing away with this agreement.”

She went further in the Q and A session. “Even with our appetite to see significant improvements in this agreement,” she said, “we very much agree that withdrawal from it is not an option and would be absolutely catastrophic.

U.S. Dairy and Mexico. The Mexican component is critical, but we’ll let Shawna Morris tell the story.

MS. MORRIS:
Twenty years ago, we had a visionary dairy farmer chairman of the U.S. Dairy Export Council and the National Milk Producers Federation. He made the decision that our industry had to look outward, not inward, and offered the necessary leadership to be able to move the industry in that direction. [The Industry leader she was talking about was Tom Camerlo of Pueblo, Colorado.]

So now it has been almost two decades that we have been focused primarily on the benefits that trade can offer, and so looking forward, not backward, when it comes to that. The U.S.-Mexico agreement, together with the Uruguay Round, is really what offered the opportunity to be able to shift our vision toward the export market. After riding out some hiccups earlier on in the tariff elimination years, Mexico … has become a strong and dependable trading partner. It’s frankly where … a lot of the U.S. companies that are now exporting all around the world first got their feet wet, [where] they came to realize that trade can offer opportunities and, from the dairy side, not only concerns.

Today, Mexico accounts for roughly a quarter of U.S. dairy exports around the world, and those sales total roughly $1 billion dollars a year. In turn, they support tens of thousands of jobs all across this country that are involved in the production and processing of the product that goes to Mexico.

When it comes to Mexico, our primary focus is ensuring that the integration and partnership that’s been built up over the years doesn’t take any steps backwards. That’s critical in the broader NAFTA discussions, which is why we believe those talks need to be focused on moving forward from the existing foundation of trade openness that has already been put in place. … [That is] extremely important as Mexico negotiates with other countries.

Homework with Canada. At one point in her June 23 remarks, Ms. Morris referred to “unfinished homework with Canada.” The key to the Canada portion of her comments was this simple statement about the NAFTA negotiations generally. “In terms of market access,” she said, NAFTA was “a series of bilaterals between the countries involved. So, in the negotiations between United States and Mexico, dairy was part of the deal and trade between the two countries is essentially duty-free.

In the U.S.-Canada negotiations, however, dairy was not included, and there are dairy tariffs on both sides. “Tariffs of 200 to 300 percent still hold back ¬¬¬¬U.S. dairy exports to Canada,” Ms. Morris said. “If that’s not the best opportunity for modernizing this agreement, well, it’s hard to think what would be a good candidate.”
The heart of the U.S. dairy dispute with Canada is Canada’s supply management system. The system applies to milk, cheese, eggs, chicken and turkey, but it is the dairy sector – milk, cheese, and other milk products – where the clash with U.S. interests is most acute.

“Even more grating than being one of the only sectors that still faces exorbitant tariffs has been Canada’s repeated use of policy tools to try to thwart dairy trade, Ms. Morris said. “Canada seems to have its cake and eat it too, by shutting down import avenues and dumping extra product on global markets.”

We took Ms. Morris’s comments to be a reference, at least in part, to the tortured story of ultrafiltered milk. This relatively new product did not have the protection of super high tariffs in Canada, and so, for a while, U.S. ultrafiltered milk was doing well in Canada. Then a regulatory change effectively undercut that market.

COMMENT

We are rather cynical when it comes to phrases like “I make a difference” or politicians selling “change” without any real discussion of what that change might be. But there are people who make a difference, a very positive difference. Some of them do it by spotting opportunities and then encouraging others to make the changes necessary to turn those opportunities into real benefits. From what we have been able to learn about him over the last few days, James P. “Tom” Camerlo was such a person. He was the Colorado dairy farmer and former head of the U.S. Dairy Export Council who saw clearly the untapped potential of export markets – including Mexico – for U.S. dairy. He died in December 2009, and part of his legacy is the big difference he made in the way American dairy farmers see themselves and their industry.

Talking about the dairy industry today, Shawna Morris said, “My members’ view is that trade done right can be a tremendously positive thing, both for farmers and for processors.”
For us, the most important fact about NAFTA is that it was one thing as a proposal in 1993. It is a very different thing as a functioning reality in 2017. The top line of this chart from the U .S. Dairy Export Council is one illustration of the current reality.

We’ll conclude with another platitude, verity – call it what you will: Nothing is static. Even if there were no NAFTA renegotiation in the offing, the nature of NAFTA is bound to change, if not from within then from forces outside of NAFTA. Among those outside forces are the agreements that Canada and Mexico are forging with other trading partners, most notably the European Union.

Those agreements have two obvious effects. One is that, to the extent that America’s trading partners grant preferences to others, the value of the preferences they extend to U.S. producers is diminished. It’s called “preference erosion,” and there is really nothing you can do about – especially if you believe in free trade.

The introduction of new restrictions vis-à-vis specific products is another possible result from the EU’s recently concluded deal with Canada and their recently launched negotiations with Mexico. That is the issue of geographical indications, which Ms. Morris mentioned in her comments in May. It is bound to come up again at the GBD event on June 23.

RELATED EVENT – FRIDAY, JUNE 23

Endless Outreach: The EU’s Trade with the World and with North America. This event will lead off with a keynote address from Ambassador David O’Sullivan of the European Union and will include panel discussions from the diplomatic and business communities. This event will run from 9:00 a.m. to 12 noon on Friday, June 23. The title link will take you to the notice for this session, including registration options.

SOURCES & LINKS

The above video link takes you to the discussion of NAFTA and U.S.  Agriculture at the GBD event on May 25, 2017.

Contentious Milk takes you to the TTALK Quote for April 27, which discusses Canada’s treatment of “ultrafiltered milk,” a product that U.S. producers were able to sell in Canada, only to see that market evaporate as the consequence of new regulations.

Top Markets is a link to a list of America’s top export markets for dairy, prepared by the U.S. Dairy Export Council.

 

MATHEMATICS – SCHOOL AND LIFE

THE LEARNING CONNECTION

“You can understand out the wazoo, but it’ll just disappear if you’re not practicing with it.”

Barbara Oakley
May 12, 2017 (publication date)

CONTEXT

Dr. Barbara Oakley is a member of the Engineering Faculty at Oakland University outside Detroit. She was not a child prodigy, at least not where the so-called STEM subjects are concerned. As she told James Taranto of The Wall Street Journal, “I flunked my way through elementary, middle and high school math and science.” To say the least, she is more comfortable with those subjects now, and her journey is a fascinating one.

We first learned of it from Mr. Taranto’s wonderful article on Barbara Oakley in the May 12 edition of the Journal. You will want to read the whole thing. The only parts we are going to steal from it are some of the things she said about the teaching of mathematics. For example:

“Because math is so sequential, if you fall off anywhere along the way, it’s hard to get back on.”

Today’s featured quote was taken from this passage:

In learning math and science through K-12, it’s long been held that practice and repetition will kill your creativity. … One mistake we make in the school system is we emphasize understanding. But if you don’t build those neural circuits with practice, it’ll all slip away. You can understand out the wazoo, but it’ll just disappear if you’re not practicing it.

We’ll finish with this paragraph from Mr. Taranto’s article:

Ms. Oakley notes that “many if not most” of her colleagues “are from countries that have educational systems completely antithetical to the education system in the United States.” In places like China and India, “practice and repetition and rote memorization are really important parts of education. She sees value in both methods: “There are real benefits for Western approaches—that it really does help with creativity. And there are also real benefits to Asian approaches—that it builds a solid foundation in the most difficult disciplines, math and science. The best education would actually be a combination of both approaches.”

COMMENT

We plead guilty. We advertised this TTALK entry as one that would deal with something other than trade policy. In a superficial sense, we were clearly telling the truth. In a more fundamental one, we lied. Education and learning have everything to do with trade.

Both Ann Wilson of the Motor and Equipment Manufacturers Association and Yuri Unno of Toyota brought up the issue in the question-and-answer session that concluded last month’s GBD panel on NAFTA and auto production.

From Ann Wilson of MEMA we heard:

The other thing we need to talk about is actually what the workforce is in this country. If you talk to our members, there’s a real serious concern about having the ability to have a trained workforce to be able to take up these jobs.

We’re not talking about necessarily even engineers and things like that, but we’re talking about people who are welders and some of the trained skilled workers that we need to have for manufacturing. So there are some very systemic issues that need to be addressed by this country before we can automatically say that it [the manufacturing that has left] can be reshored, [brought back].

From Yuri Unno of Toyota we heard:

I just want to add, [at Toyota] we’re always hiring. We can’t fill all the position because of the skill gap. And we have partnerships at the local community colleges at every single plant we have in the U.S. to continue to educate and help the community colleges tailor the programs so they educate and train the students in a way we could use right away when they graduate.

Also … we’re not decreasing our investment in the U.S. because of NAFTA; we’re actually increasing [it]. We just announced an additional $10 billion in investment over 5 years in the United States. And a big part of that is because NAFTA is helping us, [allowing] us to stay competitive for the world market.

Filling the Skills Gap.  And then of course there is the issue of U.S. companies feeling the need to rely on foreign talent, whether through H1 B visas or by doing more technical work abroad. Those are complex issues, but there does seem to be some irony in U.S. employers relying so heavily on those taught by methods the U.S. has largely rejected.

On the Front Line.  Like trade, education is an issue that is as emotionally charged as it can be complicated. We recently had a note from a woman who had read and liked Mr. Taranto’s article on Barbara Oakley. A fine mathematician in her own right, our correspondent has two young sons in public school and thinks a lot about the teaching of mathematics and how the kids respond. We’ll call her boys Doug and Tom.

The Mathematical Mother wrote:

I do think a problem with recent curriculum changes is that our schools are shifting even farther away from practice in math and towards a purely conceptual focus. It works pretty well for someone like Doug, who not only understands the concepts but then also enjoys playing with them in his mind and exploring how numbers work.

For Tom, though, it’s been a disaster. … [A high school teacher I know] said he’d discovered as a teacher that math is really the study of patterns. What I’ve realized through watching Tom struggle is that by focusing so much on concepts and … word problems, he misses the chance to discover the more basic patterns and really understand them.

***

We are not discouraged by any of the above. Every quote deals with people working through problems. And that is life at its best. Still, for a change the pace a and to show that we are not without sympathy for the non-mathematical, we’ll leave you with this …

Rhyme Composed in a Math Class

And I will fill my attics
With teachers of mathematics,
Adding six, and two, and four
And rapping regularly at the door.

They will learn the why of pi
And give dimension to the sky.

But if perchance they to learn to shout
And scream with senseless fright.
Well, then perhaps I’ll let them out.
Then perhaps, I might.

RKM 1961

SOURCES & LINKS

How a Polymath Mastered Math takes you to The Wall Street Journal article on Barbara Oakley that was the source for today’s featured quote.

From the Auto Panel takes you to the discussion of NAFTA and U.S. Automobile Production, organized by GBD and held at the National Press Club on May 25. The quotes from Ms. Wilson and Ms. Unno were both from the concluding portion of that event.

Barbara Oakley is a link to Dr. Oakley’s website.

The quotes from the Mathematical Mother are from unpublished, private correspondence.

Originally published as TTALK Quote No. 37 of 2017 on June 7, 2017.  © 2017 the Global Business Dialogue, Inc.

NAFTA – THE AUTOMOTIVE FACTOR, PART II

U.S. JOBS AND NAFTA – THE AUTO PARTS COMPONENT

“Motor vehicle suppliers are the largest employer of manufacturing jobs in the United States.”
Ann Wilson
May 25, 2017

CONTEXT

Ann Wilson is the Senior Vice President for Government Affairs at the Motor and Equipment Manufacturers Association, MEMA, and she was one of the four speakers on the auto panel at the May 25 GBD event NAFTA, From Cars to Carrots. The premise of her remarks was that, yes, NAFTA does need an upgrade, but that needs to be done with care because a lot of U.S. jobs – especially jobs among U.S. makers of auto parts – depend on NAFTA continuing largely as it is and has been for many years.

Citing a recent study, Ms. Wilson put the current number of jobs in the U.S. auto parts industry at 871,000. “That,” she said, “is a 19 percent increase over the last four years.” And, she said:

“NAFTA is part of the reason why U.S. employment in the supplier industry is so strong.”

Two-thirds of the technology in today’s automobiles, Ms. Wilson said, is developed by the U.S. auto parts companies in cooperation with their customers, the major automobile producers. She then turned back to the importance of NAFTA, saying:

Our industry … operates in a global environment. We are very dependent on NAFTA for both our supply base and our customer base and our ultimate customers, which are the purchasers of motor vehicles.

Free and fair trade is imperative for a strong domestic supply base, and it’s imperative for the supplier employment. And we recognize that we are central to the renegotiation and modernization of NAFTA.

… Not only has NAFTA been good for suppliers and our customers, the automobile industry and the trucking industry, but it’s also been good for the workforce we have. [In that context,] we are encouraging the Trump Administration to take a look at NAFTA and [NAFTA] modernization.

Yes, Ann Wilson has her wish-list for things that might be usefully included in an upgraded NAFTA. Like Charles Uthus before her, Ms. Wilson urged the negotiators to include provisions for recognizing U.S. certifications for auto parts, and she called for stronger protections for intellectual property rights. In the larger arena of intellectual property rights, the question of counterfeit goods looms particularly large for the auto parts makers. “Counterfeiting and anti-counterfeiting measures are really important to our members,” Ms. Wilson said.

That said, the issue she returned to most forcefully was the risk of losing the benefits the U.S. currently gets from NAFTA. To cast a cold eye on that issue, one needs to play the “what if” game. What if Mexico’s normal tariffs were re-introduced into U.S.-Mexico trade. The Boston Consulting Group, Ms. Wilson said, made some estimate of what the ensuing costs might be. Their projection: $16 to $27 billion additional costs to automobile producers in the United States. What would that mean to the industry? We’ll conclude with Ms. Wilson’s response to that question:

Those kinds of costs …how would they be absorbed? One of the things we think could happen is what we call the de-contenting of vehicles. – [Taking out some of those things that are not required by the Federal Government, for example.] — That could actually impact 25,000 to 50,000 jobs in the supplier industry.

COMMENT

Just three points.

U.S. Manufacturing Employment. Today’s featured quote is a dramatic one and underscores the importance of the auto parts industry to the U.S. economy. It should not detract from that point at all to note that the universe of American manufacturers is pretty big. Thus even the largest sectoral subset, namely auto parts, would appear to be roughly 7 to 8 percent of total manufacturing employment in the United States.

According to the Bureau of Labor Statistics manufacturing currently accounts for roughly 12,398,000 U.S. jobs.  Here is a short graph of America manufacturing employment, going back to 2007:

U.S. MANUFACTURING EMPLOYMENT, 2007-2017

That was quite a decline between 2007 and 2010, but things have been improving since. The question is, what effect will the NAFTA renegotiation have on the iterations of that graph for January 2018 and January 2019?

Mexico’s Elections. There were some sub-federal elections in Mexico yesterday (June 4), the most significant of which was the gubernatorial race in the State of Mexico, which surrounds Mexico City. Had the opposition candidate – Delfina Gómez Álvarez of the National Regeneration Movement (Morena) – won the day, it would have sent shock waves throughout North America as everyone tried to calculate the consequences of her victory for NAFTA and for the prospect of Morena’s leader Andrés Manuel Lópes Obrador in the general election in July 2018. But the PRI, the party of President Peña Nieto, held on. Their candidate, Alfredo del Mazo Maza, won. So, the reporting is as little more subdued, at least in quantity, but the question remains: how will Mexico’s politics (and Canada’s) feed into the NAFTA renegotiation process.

Another topic. Tomorrow’s TTALK Quote will be on an issue other than NAFTA, but we’ll pick up the NAFTA thread again soon.

SOURCES & LINKS

This is a link to the YouTube video of the May 25  panel discussion on Autos, Auto Parts and NAFTA.   Ms. Wilson’s remarks begin, roughly, at the 13:30 minute mark.

Mexico: The PRI Squeaks By takes you to a Reuters story on yesterday elections in Mexico, most notably the gubernatorial race in the State of Mexico, where the ruling party of President Peña Nieto, the PRI, managed to hold on, albeit by a slim margin.
On U.S. Manufacturing Employment is a link to the page on the website of the Bureau of Labor Statistics with the above graph and related data.

Originally published as TTALK No 36 of 2017.  © 2017 the Global Business Dialogue, Inc.

NAFTA – THE AUTOMOTIVE FACTOR, PART I

THE CAR MARKETS OF CANADA AND MEXICO

“There are only 14 markets around the world that have over a million vehicle sales. And Mexico and Canada are two of those 14.”

Charles D. Uthus
May 25, 2017

CONTEXT

Charles Uthus is the Vice President for Policy and a member of the Board of Directors at the American Automotive Policy Council. The Council represents the policy interests of Ford, General Motors, and FCA US (Fiat Chrysler Automobiles). On May 25, Mr. Uthus led off the automotive portion of the GBD event NAFTA, From Cars to Carrots.

There are things that the American Automotive Policy Council would like to see come out of the NAFTA renegotiation set to begin this summer, and we shall get to those in a moment.

Market Access. Essentially, though, the Council and its members are strong supporters of NAFTA, and the market access benefit highlighted in today’s featured quote is just one of the reasons for that support, but it is a big one. As Mr. Uthus explained:

Access to those two markets is critical and important in and of [itself]. The … tariff in Mexico is a 35 percent MFN tariff rate, and we’re not paying that tariff. That’s a huge savings. … In Canada, 6.1 percent tariff rate. We’re not paying that tariff, and we’re exporting vehicles to Canada. You know, you add all that up, and that actually is $3.5 billion a year [that our members are not paying].

Production Integration. “We have an almost seamless integration: of the auto industry across three countries today,” Mr. Uthus said. And the sums involved are huge. Again, Mr. Uthus:

Every year there is about $240 to $250 billion of automotive trade that goes across the U.S. and Canadian borders. That’s about 22 percent of total trade in the NAFTA region. So, we’re talking about a massive [flow]. There’s really nothing like it, nothing internationally that you can compare it to.

Global Competitiveness. The NAFTA auto phenomenon may be unique in its scale, but the basic pattern is not unique. Mr. Uthus explained the situation this way:

Around the word, there are three major automotive producing centers, in Asia, Europe, and North America.  Each of those has, as part of that grouping, some low-cost and [some] high-end, [some] labor intensive and [some] technology intensive countries that are part of that mix.  And Mexico serves a really incredibly important role, providing labor intensive imports into the automotive industry.

The example, the automotive part, he used to illustrate the point was wiring harnesses – the components that effectively distribute electricity to various parts of the car – and those harnesses, Mr. Uthus said, represent the largest automotive component coming into the United States – about $7 billion worth a year, if we understood him correctly. If there were no NAFTA, wiring harnesses would still not be made in the United States. They might come from Mexico or from Asia , but they would come at a higher, duty-included cost.

Not Just North America. Seamless though the process may be in North American automobile production, people do look at how much each country is contributing to the final vehicles.  According to a recent study, Mr. Uthus said, U.S. content accounts for 50 percent of a vehicle produced in Canada and for 36 percent of the vehicle that comes off the assembly line in Mexico. “So,” Mr. Uthus said, “when Mexico exports its vehicles to Brazil, 36 percent of the average value of the vehicle going to Brazil is U.S. content.”

NAFTA then is not just about cars made for the North American market. Mexico is an export platform. So too is the United States for some companies and some vehicles. We shall come back to that issue in later entries.

For the Up-Dated NAFTA. Mr. Uthus mentioned several elements his members would like to see in the new NAFTA. Two issues, though, are at the top of the Policy Council’s agenda. One is a provision that would require partners to the agreement to accept U.S. certifications for safety and emissions standards. The other is currency manipulation. The Council wants the up-dated NAFTA to include a provision on currency manipulation.

Neither of these provisions is being sought to affect America’s NAFTA partners. “Canada and Mexico clearly are not countries that are manipulating their currencies,” Mr. Uthus said. No, the reason the American Automotive Policy Council wants provisions like these in the new NAFTA is that it sees that agreement as a template for other agreements the Trump Administration is likely to negotiate, agreements where, in the Council’s view, such provisions would have practical significance.

COMMENT

We expect to publish several entries on NAFTA in the next week, most of which will relate in some way to GBD’s May 25 event on the issue. With that in mind we shall keep our own NAFTA comments to a minimum. Today, we’ll make just two points.

Across the Rio Grande. Laredo in Texas and Nuevo Laredo in Mexico, the two cities sit across the Rio Grande from each other, and each is a vital artery in the NAFTA system. “Laredo is the largest inland port in the United States, and Nuevo Laredo the largest in Latin America.” (Wikipedia)

Mr. Uthus began his talk last week with reference to a severe storm – a storm first thought to be a tornado – that threatened to shut down automobile production facilities in the United States. Part of that story has to do with the World Trade Bridge in Nuevo Laredo. As noted in an article on the storm, the Bridge “carries more than 12,000 cargo vehicles a day between Nuevo Laredo and Laredo.” And for a while, it was closed. So, yes, nature can interrupt the production integration that NAFTA has brought about, but political winds remain the larger danger.

Deadlines and Elections. It is not clear from press reports whether the U.S. and Mexico really are aiming to finish the NAFTA renegotiation by December 15, but the desire to get it done sooner rather than later and preferably this year is clear enough.

One of the reasons is the presidential election in Mexico next July. July 2018 may seem like a long way off, but Mexico’s electoral politics are already weighing heavily on the NAFTA process, and there is a litmus test – an election in the State of Mexico, including Mexico City – that is just two days away.

Kenneth Rapoza of Forbes sets the scene for Sunday’s election this way:

This Sunday’s election in Mexico City is a precursor of what’s to come in 2018. If an anti-Trump candidate wins the state of Mexico’s [gubernatorial race] this weekend, populism could swell up south of the border and make NAFTA do-overs even harder.

Indeed.

SOURCES & LINKS

NAFTA and U.S. Auto Production is a link to the YouTube video of the automobile portion of GBD’s NAFTA event on May 25, 2017. This was the source of today’s featured quote.

Storm Damages Crossing is a link to an article about last week’s storm from the Mexico News Daily.

Sunday’s Election is a link to the Forbes article quoted in the Comment Section above.

 

First published as TTALK Quote No. 35 of 2017. © 2017 The Global Business Dialogue, Inc.

NAFTA AND AMERICAN AGRICULTURE – PART I

NAFTA AND U.S. WHEAT FARMERS

“This last year [2016], Mexico was actually our number one export market. … So we feel connected to NAFTA and very protective of it.”

Molly O’Connor
May 25, 2017

CONTEXT

Molly O’Connor is a Government Relations Advisor at OFW Law and a spokesperson for the National Wheat Growers Association. Last Thursday she was one of several speakers at GBD’s two-panel event, “NAFTA, FROM CARS TO CARROTS,” which looked at the role of NAFTA in U.S. automobile and agricultural production.
There was a faint echo in her remarks of a line in Macbeth, namely, the mention of “a farmer that hanged himself on the expectation of plenty.”  While the situation she described was not so dire, the basic irony was there – a strong harvest leading to low prices. And for producers who export roughly half of their production, as America’s wheat farmers do, that irony only underscores the importance of strong export markets, starting with Mexico.

Ms. O’Connor talked about the product. “We have six different classes of wheat here in the U.S.,” she said, “and those different classes all have different purposes.” Three of those classes of wheat are Hard Red Winter, Durum, and Soft White. The Soft White is good for cake flour, and they grow a lot of it in the beautiful (and heavily export dependent) region of Eastern Washington, Idaho, and Oregon known as the Palouse.

American wheat, Ms. O’Connor said, is grown in the Pacific Northwest, in the states that border Canada, in the Eastern states, and on the Great Plains. And NAFTA has clearly changed things. “NAFTA has been a great benefit these past few years,” Ms. O’Connor said, “… the U.S. wheat that has been imported into Mexico has increased 40 percent, which is significant.”

That does not mean that U.S. wheat producers will have nothing to say when it comes to renegotiating NAFTA. There may be merit, she suggested, in including in an up-graded NAFTA some of the sanitary and phytosanitary provisions of TPP. And there are other outstanding issues as well. Ms. O’Connor mentioned, for example, a “grain grading issue with Canada.” She added quickly, however, that America’s wheat growers very much hope that issue can be dealt with separately from the NAFTA renegotiation.

COMMENT

The event at which Ms. O’Connor spoke took place on Thursday, May 25. Two days earlier on Tuesday, May 23, the House Committee on Ways and Means held a hearing centered on trade and the Committee’s proposal for an overhaul of the U.S. tax system. Key to that proposal are lower rates, a move toward a territorial system, and a border adjustable tax. Almost certainly, we will return to that hearing later with a focus specifically on the proposal for a border adjustable tax. Here we simply want to share some comments made about American agriculture.

One of the witnesses was Juan Luciano, the Chairman, President, and CEO of Archer Daniels Midland Company. Your editor’s essential (that is to say emotional) understanding of American agriculture was formed in the 1960s, 70s, and 80s, which, among other things, included headline sales of enormous quantities of grain to the Soviet Union. So for us, listening to Mr. Luciano was a rude, Rip van Winkle awakening. Here is some of what he said.

JUAN LUCIANO
The U.S. share of global exports has fallen precipitously in major commodities over the past five decades….

We have lost market share. We used to be the breadbasket of the world. We have lost in wheat to Russia. We have lost it in soybeans to Brazil. We are hanging on to corn but not for long. What happened in this period is that acreage in the United States has been reduced 12 percent over the last 20 years, while in Russia production in corn has improved 61 percent. The planted area of soybeans has increased by three times.

America’s advantages in terms of such things as weather and the fertility of the soil are not unique, Mr. Luciano said. What he asked the Members of the Ways and Means Committee to focus on was this: the countries that have those kinds of advantages have put in place “policies [including border adjustable taxes] that actually are helping [their] farmers to take market share from the U.S.”

And it gets worse. As Ms. O’Connor pointed out, “Since 2010, Mexico has lifted tariffs [on wheat imports] from non-NAFTA countries, with the result that an increasing proportion of Mexico’s wheat imports are from outside North America.”

Against that background – and the fear that things could get even worse if the NAFTA renegotiation turns sour – Ms. O’Connor ended her presentation with a plea: “From [North American Wheat Growers] standpoint, our biggest priority is, ‘Do no harm.’”

SOURCES AND LINKS

NAFTA and U.S. Agriculture from GBD is a link to the YouTube video of this panel presentation. Ms. O’Connor’s remarks start at roughly the 23:50 minute mark.

Classes of Wheat takes you to a page on the website of U.S. Wheat Associates that includes the six main classes of wheat, where they are produced, and the products in which they are used.

At Ways and Means is the C-Span video of the May 23 Ways and Means hearing U.S. taxes and competitiveness. The comments from Mr. Luciano above can be found, roughly, at the 1:07:25 mark.

A Trade Policy Association