Agriculture in NAFTA Renegotiations

Agriculture will feature prominently in the upcoming NAFTA renegotiations, despite its modest contribution to total intra-NAFTA trade and resultant surpluses/deficits. Agriculture accounted for roughly 7 percent of US trade with Canada and with Mexico and 8 percent of US trade’s modest surplus with Canada and deficit with Mexico in 2016. These shares are small but significant. For select products, however, the shares are much higher: Mexico received 28 percent of the US maize crop and Canada and Mexico account for nearly a third of US beef exports. These market shares imply large potential for retaliation—as US losses—even if agriculture’s contribution to intra-NAFTA trade is relatively minor.

Three points are worth making in advance of the negotiations:

1. US and Canadian agricultural producers like NAFTA and will fight hard to preserve it. Aside from some wrangling over market access issues for dairy, poultry, and eggs and recent spats over Canadian softwood lumber, farm organizations in both countries view NAFTA positively. Public opinion in Mexico is more ambivalent, but NAFTA has created strong export-oriented agricultural interests in the country’s north that balance more protectionist interests in the south.

   The US Farm Bureau, the largest farm lobbying organization in the United States, is decidedly pro-NAFTA, arguing that “Any renegotiation [of NAFTA] must protect the gains achieved in agricultural trade and work to remove remaining barriers to trade with Canada and Mexico.” The National Cattlemen’s Beef Association expressed a similar sentiment regarding prominent trade deals like the Trans-Pacific Partnership (TPP) and NAFTA: “Since NAFTA was implemented, exports of American-produced beef to Mexico have grown by more than 750 percent. We’re especially concerned that the Administration is taking these actions without any meaningful alternatives in place that would compensate for the tremendous loss that cattle producers will face without TPP or NAFTA.” US farmers do not, in the main, want to curtail or roll back market access—they want to expand it.

2. Despite not being as extensive as those in other industries, NAFTA has created complex cross-border agricultural supply chains that create value added for the US economy, particularly in GOP-leaning states. Pork is an excellent example. In 2014 the United States imported 4.9 million Canadian pigs, 3.9 million of which were feeders, 8- to 12-week old juvenile pigs weighing 10 to 60 pounds.¹ These pigs are birthed and weaned on Canadian farms before being exported to states such as Iowa, Minnesota, Illinois, and Indiana where they can be finished—fed to eventual slaughter weight—on inexpensive US corn and soybean meal, and then slaughtered and processed in US facilities. The resulting pork products are then either consumed domestically in the United States or exported to the Canadian and Mexican markets. Thus a pork cutlet consumed in Toronto may have started life as a piglet on an Ontario farm before being exported to the United States and then reimported as a US-produced finished cut. Interrupting this supply chain would have adverse effects for both Canadian and US producers and consumers. Similar situations obtain with respect to grains, oilseeds, and processed foods and livestock.
3. Disruptions to NAFTA could create big problems for Trump-voting states and states with GOP and split Senate delegations, especially those that rely heavily on agricultural exports and intra-NAFTA trade. This administration cannot hope for successful ratification of a renegotiated NAFTA without the support of the heavily agricultural, highly intra-NAFTA trade–dependent delegations from the Dakotas, Iowa, Kansas, Missouri, Montana, and Nebraska. Reopening NAFTA entails mostly downside risk for these delegations, as the status quo favors their products.

A successful NAFTA renegotiation would incorporate many of the provisions of the successfully negotiated Trans-Pacific Partnership, including the removal of export subsidies and resolution of several sanitary phytosanitary standards (SPS) related issues. The TPP addressed all four objectives identified in then-acting US Trade Representative Stephen Vaughn’s March 30, 2017, draft letter to Congress. The TPP would have required all members to abolish export subsidies, including Mexico’s for wheat and Canada’s for dairy products sold in the United States. The SPS chapter of the TPP would have obligated member countries to use science-based risk analysis for evaluating SPS threats, effectively harmonizing these procedures to those of the United States, and would have established a rapid reporting system for all SPS-related detained shipments, a cooperative technical consultation system for SPS issues, and a dispute resolution mechanism for SPS-related issues.

NAFTA has been a considerable boon to agricultural interests across the United States, Canada, and Mexico, spurring intra-NAFTA trade and resulting in greater consumer choice in each. The USTR must be careful not to let agriculture become a casualty of disputes over unrelated issues, as the trade agreement has been largely successful in integrating and expanding the North American agricultural market.

Note

1. US Department of Agriculture, Overview of the United States Hog Industry (Washington, 2015).