News

NAFTA Negotiations Set to Begin


Today’s update looks at recent news items that focus on the first round of NAFTA trade negotiations that are scheduled to start this week. Along with some general background, the articles also highlight perspective from both Canada and Mexico, and explore agricultural concerns associated with the NAFTA discussions, particularly with respect to pork and corn.

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Background

William Mauldin and Jacob M. Schlesinger reported earlier this week at The Wall Street Journal Online that, “The first round of negotiations over the North American Free Trade Agreement is scheduled to start Wednesday in Washington, D.C. President Donald Trump has called the pact, which took effect in 1994, a disaster for U.S. workers, a message that resonated in manufacturing states during his campaign. But businesses that have benefited from open trade with Canada and Mexico are urging the administration not to jeopardize the complex system of commerce among the three countries that has taken root under the agreement.”

With respect to timing, an issue that lawmakers emphasized at a House Ag Committee hearing on NAFTA late last month, Mauldin and Schlesinger explained that, “Trump aides say the president wants to move quickly, aiming to wrap up negotiations by early next year, to avoid having the talks getting caught up in the 2018 election campaigns in Mexico and the U.S. But that is an unusually rapid timetable, as major trade negotiations are usually measured in years, not months. Trade experts say the quick deadline might be feasible if the countries were only looking at minor tweaks, but Mr. Trump’s desire for a major overhaul makes it particularly challenging.”

While addressing farm interests, the Journal article indicated that:

“The big U.S. agricultural industries—corn, beef, pork—are happy with the current version of Nafta and are focused mainly on preserving their duty-free, quota-free access to Mexico and Canada.

“But disagreements over agriculture can quickly turn bitter in trade talks. When Mr. Trump threatened to pull out of Nafta in April, some Mexican politicians warned that their nation could import more food from other Latin American nations instead of the U.S. Meanwhile, U.S. dairy farmers want Canada, which tightly controls dairy prices and imports, to open up its market.”

In a separate Wall Street Journal article posted on Sunday, Jacob M. Schlesinger, Robbie Whelan, Paul Vieira and Jacob Bunge explained that, “The question is whether U.S. negotiators can extract enough concessions from Mexico and Canada so that Mr. Trump can declare victory to his factory-worker base without upsetting his business backers, who have lobbied intensively to preserve the agreement.

“Few think that will be an easy needle to thread.”

The Journal writers added that, “Mexico and Canada are entering the negotiations mainly playing defense, making few demands other than to try to protect and modernize an agreement that has generally been more popular in those countries than in the U.S.”

Perspective from Canada and Mexico

Alan Freeman reported on Sunday at the Washington Post Online that, “Canada enters crucial talks in Washington on the ­renegotiation of the North American Free Trade Agreement this week with a complex mix of self-confidence and dread about possible damage to its most important trading relationship.”

The Post article noted that, “Although they think that Trump’s major trade gripes are with Mexico, they remain concerned about U.S. efforts to gain concessions in such politically contentious sectors as lumber, dairy and wine, as well as a threat by the Americans to weaken the dispute-settlement mechanism, which Canada achieved only with difficulty in its original free-trade talks with the United States in the 1980s.”

And Kate Linthicum reported in yesterday’s Los Angeles Times that, “Mexico’s aim during the negotiation will be to be move quickly under the guiding principle of ‘do no harm,’ said Michael Camuñez, the CEO of a consulting group called Monarch Global Strategies, who served as assistant secretary of Commerce under President Obama.

“Camuñez said he believes that all sides can reach an agreement they will be happy with while significantly modernizing NAFTA. After all, he said, Mexico’s political and business leaders have long desired updates to the country’s trade relationship with its neighbors to the north. That is why Mexico eagerly signed on to the Trans-Pacific Partnership, the 12-country trade deal that Trump pulled the U.S. out of on his third day in office.”

Agricultural Issues- Pork, Corn

Barbara Soderlin reported on Sunday at the Omaha World-Herald Online that, “A large new pork processing plant set to open next month 100 miles north of Omaha is expected to add more fuel to the Nebraska pork industry’s recent growth spurt.”

“The plant, run by Seaboard Triumph Foods, is one of five opening around the Midwest, adding a total of about 10 percent more processing capacity for the industry. The growth may not lead any existing plants to close, though, because U.S. hog numbers are expected to keep growing fast enough to keep the plants productive, observers said.”

Ms. Soderlin noted that, “But there’s a cloud threatening to rain on the industry’s growth parade: the risk that the upheaval in free trade deals under President Donald Trump will dampen other countries’ demand for U.S. pork. The industry is counting on those export sales for continued expansion.

‘The reason that (the industry is) profitable right now, despite an increase in production, is that exports are surging,’ said Dermot Hayes, ag economist at Iowa State University in Ames.

The World-Herald article added that, “It’s also important for the industry not to lose ground with Mexico and Canada, among its top four export partners, when negotiations begin this week over the North American Free Trade Agreement, said Al Juhnke, executive director of the Nebraska Pork Producers Association. ‘We don’t want to mess that up,’ he said.”

And with respect to corn export issues, recall that back in March, a Los Angeles Times article reported that, “Mexico, which exported surplus corn as recently as the early 1980s, now buys a third of the corn it consumes from the United States. Last year, it purchased $2.5 billion worth of corn from Iowa, Nebraska and other states, making Mexico the largest corn export market for U.S. farmers.”

Corn Belt producers would not like to see this demand rattled, as stakeholders explained to the House Ag Committee last month, particularly at a time of increasing competition on the global corn market from Brazil and Argentina.

And in more detailed reporting on this increasing competition in the corn market, Bloomberg writers Tatiana Freitas and Megan Durisin reported late last month that, “The world’s biggest corn exporters are preparing for a showdown.”

“Competition has ramped up for farmers in the U.S., the world’s biggest grower and exporter. Brazil, which barely shipped any corn just two decades ago, has since emerged as a significant competitor. Sales are also on the rise from Argentina, which reaped a record harvest this season.”

The Bloomberg writers added that, “‘U.S. exports probably will continue to flag lower, while South America’s continue push higher,’ Don Roose, president of U.S. Commodities in West Des Moines, Iowa, said in a telephone interview. ‘It’s going to be a real fight.’”

This month’s Feed Outlook report, from USDA’s Economic Research Service, provided a broad-based view of the importance of exports to the U.S. corn market, relative to some other countries, including Brazil and Argentina.

The Outlook report stated that, “U.S. corn exports are lowered this month by 25 million bushels in September-August 2017/18 to 1,850 million. Competitor corn shipments continue to be forecast higher, dampening U.S. prospects. So far this marketing year, the major buyers of U.S. corn have been Mexico, Japan, and Pakistan. Brazil, Argentina, and the Ukraine continue to ship more than last year, increasing pressure on U.S. exports.”

The Feed Outlook report also explained that, “The United States is also the largest corn exporter, even though it is projected to export only 13 percent of its produced corn. However, some major exporters produce much less corn than the United States but export a much larger share of their corn output because of low domestic use. Brazil, Argentina, and Ukraine are projected to account for 9, 4, and 3 percent of world corn output in 2017/18, while their world corn export shares are much higher at 22, 18, and 14 percent, making them the largest corn exporters after the United States. These three countries are projected to collectively account for more than half (55 percent) of world corn exports, supplanting the United States, which used to have more than a 50 percent share in world corn trade [see ERS graphs below].”

Source: Keith Good, Farm Policy News

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