During many of his stump speeches on the campaign trail, Donald Trump talked about the need for America to “win” more when it comes to trade. Trump cited problems with the North American Free Trade Agreement (NAFTA) and the prospective Trans-Pacific Partnership (TPP) as “bad deals” that need to be addressed. He argued that these deals cost jobs and that future deals must do more to create U.S. jobs, particularly in manufacturing. Shortly after Trump’s election, Canada and Mexico also signaled their willingness to renegotiate and modernize NAFTA.
Since becoming president in January 2017, Trump turned his campaign rhetoric into action. Early in his presidency, he officially withdrew the United States from the TPP and there was wide speculation that he might withdraw from NAFTA. However, several cabinet officials, including Secretary of Agriculture Sonny Perdue, made a strong case that renegotiation was a more effective strategy than withdrawal. Rather than initiate a withdrawal, the White House sent a letter to Congress on May 18, 2017, announcing the beginning of the NAFTA renegotiation process. This letter triggered a 90-day period in which the United States, Mexico, and Canada all engaged in consultation processes to identify objectives for renegotiation.
Formal negotiations began on August 16, 2017 with the hope of completing the process as early as the end of 2017. Mexico has expressed a sense of urgency with the timing of negotiations, as the country has a presidential election in 2018. The current Mexican administration would like to complete NAFTA 2.0 well before the next election if possible. While actively engaged in the negotiations, there are signals from Canada that they do not feel the same sense of urgency to move quickly. Meetings are scheduled to take place every two to three weeks, rotating between the three countries.
What’s at Stake?
Success of the NAFTA renegotiation will be important for the cold chain industry in Canada, Mexico, and the United States. Overall, trade between the three countries accounts for over $1 trillion in annual economic activity. This is up from approximately $290 billion before NAFTA went into effect.
For the food and agriculture sector, NAFTA has largely been seen as a positive force for driving trade. For example, agricultural exports from the United States to Mexico and Canada have more than quadrupled, growing from $11 billion in 1993 to $43 billion in 2016. This accounts for approximately 25 percent of all U.S. agriculture exports and represents one in every 10 acres planted going to exports to Canada and Mexico.
This growth in trade has been good for the cold chain industry in the region, as the movement of perishable commodities has increased significantly. If the negotiations were to fail, or if Trump were to withdraw from NAFTA, these beneficial policies would go away and tariffs would rise to the World Trade Organization (WTO) most-favored-nation level. This would be harmful to the food and agriculture sectors of each country, making certain products highly uncompetitive and decreasing the flow of some perishable products across borders in the region.
Specific Country Objectives
Each NAFTA member country has outlined a series of objectives regarding the renegotiation of NAFTA. The United States released a comprehensive list of over 100 objectives that included a specific set of items related to agricultural goods listed below:
U.S. Agricultural Goods Objectives
Maintain existing reciprocal duty-free market access for agricultural goods.
Expand competitive market opportunities for U.S. agricultural goods in NAFTA countries, substantially equivalent to the competitive opportunities afforded foreign exports into the U.S. market, by reducing or eliminating remaining tariffs.
Seek to eliminate non-tariff barriers to U.S. agricultural exports including discriminatory barriers, restrictive administration of tariff rate quotas, and other unjustified measures that unfairly limit access to markets for U.S. goods, such as cross subsidization, price discrimination, and price undercutting.
Provide reasonable adjustment periods for U. S. import-sensitive agricultural products, engaging in close consultation with Congress on such products before initiating tariff reduction negotiations.
Promote greater regulatory compatibility to reduce burdens associated with unnecessary differences in regulation, including through regulatory cooperation where appropriate.
U.S. Sanitary and Phytosanitary (SPS) Objectives
Provide for enforceable SPS obligations that build upon WTO (World Trade Organization) rights and obligations, including with respect to science-based measures, good regulatory practice, import checks, equivalence, and regionalization, making clear that each country can set for itself the level of protection it believes to be appropriate to protect food safety, and plant and animal health in a manner consistent with its international obligations.
Establish a mechanism to resolve expeditiously unwarranted barriers that block the export of U.S. food and agricultural products.
Establish new and enforceable rules to ensure that science-based SPS measures are developed and implemented in a transparent, predictable, and non-discriminatory manner.
Improve communication, consultation, and cooperation between governments to share information and work together on SPS issues in a transparent manner, including new technologies.
Provide for a mechanism for improved dialogue and cooperation to address SPS issues and facilitate trade where appropriate and possible.
Canadian Objectives
The list of Canadian objectives is much shorter than the U.S. list, but includes several that will impact the food and agriculture sector. Below are some of the food and agriculture industry relevant Canadian objectives:
A new chapter on labor standards.
A new chapter on environmental standards.
Reforms to the investor-state dispute settlement process.
Expand procurement.
Freer movement of professionals.
Protect Canada’s supply-management system for dairy and poultry.
Maintaining a process to regulate antidumping and countervailing disputes, like the one over softwood lumber.
Mexican Objectives
Similar to Canada, Mexico’s initial list of objectives is shorter than that of the United States. Some highlights of the Mexican objectives include:
Retain unimpeded access for goods and services in the NAFTA region.
Promote greater integration of North American labor markets and address rules of origin.
Strengthen regional energy security.
Strengthen dispute resolution mechanisms.
Standardize sanitary and phytosanitary requirements.
Protect intellectual property.
Fight corruption.
Status of Negotiations and Next Steps
The first round of negotiations occurred from August 16-21, 2017, in Washington, DC. The first round served as a starting point for each country to begin staking out their priorities and positions. The parties issued a trilateral statement after the meetings concluded that read in part, “The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area. . .While a great deal of effort and negotiation will be required in the coming months, Canada, Mexico, and the United States are committed to an accelerated and comprehensive negotiation process that will upgrade our agreement and establish 21st century standards to the benefit of our citizens.” This was a positive indication that discussions were moving forward in a positive direction.
The second round of negotiations took place in Mexico during the first week of September 2017, and was seen mainly as a continuation of the first round, with few major developments. The parties largely avoided putting more controversial proposals on the table at this point, with the expectation that the third round in Canada might produce discussions on tougher topics.
The third round, held in Canada, concluded on September 27, 2017, and marked some additional progress on less controversial items. The three governments applauded agreements on issues related to small and medium sized enterprises and competition policy. However, there are concerns with the pace of the negotiations and the fact that there has been little work on the more controversial issues. Pressure is growing to make faster advances to meet the initial goal of completing the talks by the end of 2017.
Four more rounds of negotiations are scheduled in 2017, with the next coming in mid-October in the United States. Much work lies ahead for the negotiators and agricultural policies are among some the most challenging issues yet to be resolved. For example, the United States has indicated its desire to provide protection for seasonal producer growers that face stiff competition from Mexican imports. In response, Mexico is considering proposals that would protect against large volumes of U.S. pork imports by imposing limits or quotas. The United States has also raised issues regarding the Canadian government’s protection of its dairy and poultry industries, which remain a high priority for Canada. These efforts to protect domestic producers will make resolving policies regarding food and agriculture more difficult.
The stakes for a successful renegotiation are high for members of the cold chain industry in all three countries. Free and unfettered movement of food and agricultural products in the NAFTA region will drive business opportunities for GCCA members across the region. GCCA will continue to closely monitor the negotiations and remain actively engaged with partners across government and industry with hopes of a successful NAFTA 2.0 at the end of the process.
Lowell Randel is Vice President, Government and Legal Affairs at GCCA. This article was originally published in the November-December 2017 issue of COLD FACTS Magazine.