NAFTA Renegotiation Formally Launched– Agricultural Perspectives

Background

Shawn Donnan and Jude Webber reported on Thursday at The Financial Times Online that, “Donald Trump has fired the starting gun on renegotiations of the North American Free Trade Agreement with Canada and Mexico, with his administration notifying Congress on Thursday that it planned to begin formal talks as soon as August.

“The move came in a letter to congressional leaders from Robert Lighthizer, the new US trade representative, giving Congress the required 90-day notification of new trade talks. It also came just three weeks after Mr Trump abruptly reversed a plan to withdraw from the 23-year-old trade agreement that now underpins the North American supply chains of myriad multinational companies.

Mr Lighthizer said the US hoped to wrap up the negotiations by the end of this year. But he and other administration officials also signalled that Washington would be seeking fundamental changes in the relationships with Canada and Mexico.

William Mauldin reported on Thursday at The Wall Street Journal Online that, “The negotiations stand to put President Donald Trump into a politically tight spot at a time when the current political turmoil already threatens to hold up parts of his agenda.

“While both sides concede Nafta needs updating, the congressional Republicans most likely to support a final deal would rather see a tweaking, since a significant overhaul or major new provisions could end up eroding the benefits companies and farmers get from reliable, duty-free exports to Canadian and Mexican markets.”

Washington Post writer Ana Swanson reported on Thursday that, “Lighthizer, who is the administration’s main trade negotiator and whose confirmation process dragged on until last week, said that the pact had been successful for some industries, such as agriculture, but that for others, such as manufacturing, it had not.

“‘We should build on what has worked in NAFTA but change and improve what has not,’ he said.”

An article in Friday’s Los Angeles Times indicated that the Trump administration “notifies Congress of intent to begin talks with Canada and Mexico in 90 days.”

And Don Lee reported in Friday’s Los Angeles Times that, “Canada and Mexico are the United States’ top trading partners after China. Two-way trade in goods and services between the U.S. and Canada has nearly tripled since NAFTA took effect, and U.S. trade with Mexico has jumped more than six-fold since then. Last year the U.S. had a $62.7 billion trade deficit with Mexico and a $8 billion surplus with Canada.”

Agricultural Perspective

Associated Press writer Paul Wiseman reported on Friday that, “A sizable majority of rural Americans backed Donald Trump’s presidential bid, drawn to his calls to slash environmental rules, strengthen law enforcement and replace the federal health care law.

“But many farmers are nervous about another plank in Trump’s agenda: His vow to overhaul U.S. trade policy, including his intent announced Thursday to renegotiate the North American Free Trade Agreement with Canada and Mexico.”

(For more background, see this FarmPolicyNews update from January: “‘Rural Voters May Not Align with ‘Farm’ Voters on Trade Issues“).

The AP article stated that:

But NAFTA and other deals have been good for American farmers, who stand to lose if Trump ditches the pact or ignites a trade war. The United States has enjoyed a trade surplus in farm products since at least 1967, government data show. Last year, farm exports exceeded imports by $20.5 billion.

“Many farmers worry that Trump’s policies will jeopardize their exports just as they face weaker crop and livestock prices.”

The AP article added that, “But since it took effect in 1994 and eased tariffs, annual farm exports to Mexico have jumped nearly five-fold to about $18 billion. Mexico is the No. 3 market for U.S. agriculture, notably corn, soybeans and pork.”

“China, Canada, and Mexico are the top destinations for U S agricultural exports.” From “Ag and Food Statistics- Charting the Essentials, 2017” (USDA-ERS).

Mr. Wiseman also pointed out in his article that, “The White House declined to comment on farmers’ fears that Trump’s trade policy stands to hurt them. But officials say they’ve sought to ease concerns, by, for example, having Agriculture Secretary Perdue announce a new undersecretary to oversee trade and foreign agricultural affairs.”

The AP article added that, “‘So much of the conversation in the campaign had been in Detroit or in Indiana’ and focused on manufacturing jobs, said Kathy Baylis, an economist at the University of Illinois. The importance of American farm exports ‘never made it into the rhetoric.'”

Meanwhile, in a statement on Thursday, Agriculture Secretary Sonny Perdue noted in part that:

When the rules are fair and the playing field is level, U.S. agriculture will succeed and lead the world. It’s why we recently announced the creation of an undersecretary for trade at USDA, because as world markets expand, we will be an unapologetic advocate for American agriculture. As I have often said, if our people continue to grow it, USDA will be there to sell it

In addition, USDA radio released a brief news overview on trade and NAFTA late last week.  To listen to this one minute audio summary, click on the link below.

House Agriculture Committee Chairman Mike Conaway (R., Tex.) also addressed NAFTA and ag related issues during a conversation with Mike Adams on the AgriTalk radio program on Thursday. (Note that a complete unofficial transcript of their wide ranging conversation is available here).

Chairman Conaway indicated that, “Well, we had conversations yesterday with our trade rep Lighthizer, and Wilbur Ross, Secretary of Commerce. Lighthizer wants to get it done quickly. He understands the turmoil that can be created as a result of the uncertainty associated with it. The document is 23 years old. All three economies are dramatically larger than they were when it was negotiated. The mix of what we do is much different. And so it is high time to have that renegotiation. There’s nothing wrong or fearful of that. I had an opportunity to express to them that do not throw ag under the bus, don’t swap out ag interests for something else and all those kind of conversations you’d think I would have with those guys.”

Chairman Conaway added that, “But Lighthizer wants to get into that quickly because the quicker it’s done, the shorter the time for uncertainty and the less anxiety among ourselves and our trading partners that would get created. We’ve already seen disruptions in the market with Mexico looking for corn from other sources and other things like that in retaliation to some of the language that has been used in our campaigns and that kind of stuff. So the quicker we can get NAFTA negotiated, which is an appropriate approach, the better.”

And more specifically on Mexico and U.S. corn exports, 

Wednesday’s article explained that, “In fact, some of [Felipe Basarte’s (who’s company every month imports into central Mexico thousands of tons of U.S.-grown corn )] associates trekked to Brazil last week to scout out potential new sources of grain imports as a contingency.”

And Reuters writer  Mitra Taj reported on Friday that, “Mexico expects to import a record amount of yellow corn from Brazil this year after its livestock producers secured lower prices in deals with suppliers on a recent visit to South America as NAFTA talks loom, a Mexican official said Thursday.

“Alejandro Vazquez, a government official who was part of a Mexican delegation that visited Brazil and Argentina last week, said Mexican livestock companies on the trip had negotiated directly with suppliers and cut out commodities traders such as Cargill Inc and Louis Dreyfus that normally arrange shipments.

“Following repeated threats by U.S. President Donald Trump to pull out of the North American Free Trade Agreement, Mexico, a net grains importer, has been eager to show the United States that it has options to trade elsewhere.”

The Reuters article noted that, “Vazquez, the head of Aserca, an agency in the Agriculture Ministry that promotes Mexican products, said the livestock companies chose to pay more for Brazilian yellow corn as an investment in case NAFTA unravels and disrupts the cheap access to U.S. corn they use for animal feed.”

Meanwhile, an Omaha World-Herald editorial in yesterday’s paper stated that, “Many factors have led to the ag-economy downturn, but it’s encouraging that an important one — the need to maintain and expand opportunities in overseas markets — has received strong attention in recent days.

“Foreign sales account for about a third of U.S. farm income. Half of U.S. soybean production is sold abroad.”

The editorial added that, “Given the pressures on producers, the federal government needs to avoid irresponsible rhetoric and actions that create uncertainty and undercut our export opportunities.

“The possibility of reduced access to foreign markets is ‘probably the biggest risk we have in the farm economy right now,‘ Steve Nelson, president of the Nebraska Farm Bureau Federation, told The World-Herald in April.”

Keith Good

Keith Good is the social media manager for the farmdoc project at the University of Illinois. He is well known in agricultural circles for the daily FarmPolicy.com News Summary.