Farm Progress

TPP is out; there is talk of NAFTA changes; but so far not much is happening to open more markets for ag.

Walt Davis 1, Editor

May 10, 2017

5 Min Read
SURPLUS GRAIN: With piles of grain stored in bunkers around farm country, the ag industry would like to see new trade agreements and the opening of new markets for U.S. grains moved up on the political priority list.

Editor's note: This is the third and final in a series of stories about U.S. agricultural trade issues.

It is now more than four months into the new Trump administration and the promise (or threat) of tearing up existing trade agreements and negotiating new, better terms has yet to move past an executive order  pulling out of the Trans-Pacific Partnership and a series of insults to Mexico and Canada.

As of May 9, the confirmation vote for U.S. Trade Representative Robert Lighthizer had not been held. No negotiations are underway on the bilateral pacts that the Trump administration has pledged to negotiate in place of the TPP.

After campaigning on the promise to stop Chinese currency manipulation and doing a lot of tough talking about establishing a better balance of trade with the Asian powerhouse — with which the U.S. does have a $330 billion per year trade deficit — Trump has met with Chinese President Xi Jinping, declared that currency manipulation is no longer occurring and decided an imbalance of trade is a fair price to pay for Chinese help with "the North Korea problem."

For farmers across America, who have bunkers of unsold grain on the ground, more sales to existing markets is vital, and the opening of new markets is the promise of a brighter future.

Related:Commodity groups nervous about trade path forward

Secretary of Agriculture Sonny Perdue has promised that a renegotiation of the North American Free Trade Agreement will be coming sooner rather than later, but there is little information about exactly what portions of the agreement would be on the table and how it could impact agricultural sales. And the reality of the legal structure for changing a longtime trade deal makes it unlikely that major changes could be made in a short time frame.

Floyd Gaibler, director of trade policy and biotechnology for the U.S. Grains Council, says trade agreements really didn't start occurring until the 1980s. They came about largely because it became apparent that industries such as agriculture were able to supply far more than the domestic market could absorb, and it became important to look at where new markets could be found.

"It became the role of the U.S. government to try to figure out how to structure an agreement that took into consideration all the various tariff restrictions or nontariff barriers," he says. "Ag is one of the most protected sectors of any economy; for us it has been a primary way to grow exports. We started out going to traditional allies, like our next-door neighbors. They were both important markets even back then, and as those markets have grown, ag has benefited immensely."

Related:Soybean farmer tells his story to promote U.S. beans to trade customers

In fact, many officials argue, in the 20 years since NAFTA went into effect, the economies, transportation, manufacturing and agricultural production of the three countries have become so intertwined that even a repeal of NAFTA would leave companies at a loss as to how to untangle them.

Gaibler says one of the frustrating things for him is that many trade negotiators have been aware of the need for updating and modernizing NAFTA, and actually negotiated changes that were part of TPP, only to have that agreement struck down.

"Because of NAFTA, we have created a supply chain that has made all of North America more competitive in livestock production both domestically and internationally; all three countries would have benefitted from TPP," he says. "We have already created an efficient North American system, and the trade agreement played a dominant role. For U.S. exports, Mexico is No. 1 for corn, No. 2 for DDGs [dried distillers grains]; it is a leading buyer of barley and sorghum."

How forging multilateral agreements into bilateral agreements will work remains to be seen. There are advantages to one-on-one negotiation, Gaibler says. But there are also advantages to having multiple countries involved.

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He says he is not optimistic that a better agreement can come from bilateral talks with Japan, for example.

"There were a lot of benefits to the ag industry in the TPP," he says. "On livestock, we got Japan down to the same levels as Australia and New Zealand. The benefits to ag were pretty substantial. If you turn around to do a bilateral with Japan, expecting to come out with a better agreement is not realistic. I was just there and met with the ministry of agriculture. If you look at TPP as 11 bilateral agreements, you have to realize that meat and livestock, rice and wheat are part of their domestic mix, and there is strong political opposition from the domestic ag industry. I don't think there is much likelihood that a new agreement would have better benefits for the U.S."

Gaibler says that one big advantage of negotiating a multilateral deal is that you get the same rules for exports across the board, rather than separate rules for each country.

"It streamlines the whole procedure; you can ship to partner countries knowing you don't have to do different procedures for each one," he says.

Currently, the U.S. has two multilateral agreements: NAFTA which involves the U.S., Mexico and Canada, and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR),which involves the U.S., Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

The U.S. has bilateral agreements with Panama, Colombia, South Korea, Peru, Costa Rica, Oman, Morocco, Australia, Chile, Singapore, Jordan, Mexico, Canada, Israel, Dominican Republic, Bahrain, Guatemala, Nicaragua, Honduras and El Salvador.

For agriculture, 43% of sales go to the 20 countries with which the U.S. has trade agreements.

Gaibler says it is also important to realize that many of the imports into the United States from other countries are parts for manufacturing or ingredients in food production for products that are then sold domestically.

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