By Carlo Dade
Published in the Hill Times
November 8, 2017
As North American Free Trade Agreement (NAFTA) negotiations appear to teeter on the brink of failure, now—counter intuitively—is the best time for Canada to make new demands at the bargaining table. Specifically, it is an opportunity for the seemingly ignored agricultural sector.
There are two reasons for this.
The first is something that has gone largely unnoticed in Canada—the NAFTA-esque drama surrounding the United States-Korea Free Trade agreement. As with NAFTA, in September during the annual review of the U.S.-South Korea agreement, Trump threatened to pull the U.S. out. Reports out of D.C. had the withdrawal notification on Trump’s desk, ready for signature. But pressure from U.S. agriculture groups reportedly helped pulled Trump’s pen off the withdrawal paper.
In Canada’s case, Trump’s notorious volatility means that it’s really 50/50 whether he withdraws from NAFTA or repeats his negotiating stunt with South Korea. The point is that we have to be ready to find ourselves where the Koreans are: back at the negotiating table, with a bad case of whiplash after having been shown the door.
We could also, as in the case of South Korea, be there because of pressure from U.S. agricultural interests. If this is the case, then having a “win” for the Americans on agriculture is an absolute must and may enable us to salvage the NAFTA negotiations.
Last week in a meeting with U.S. senators on NAFTA, Trump faced his toughest questions and pressure from representatives from the farm belt. Trump assured senators that he understood the importance of NAFTA for U.S. agricultural interests and that they should trust him and not get “excited.” The response from one farm belt senator was, we may trust you but we are already “excited”—that is, worried, alarmed and scared.
For U.S. agriculture, the trade picture is bleak. If the Trans-Pacific Partnership (TPP) goes ahead without the U.S., American farmers will face significant losses in Asia, as the Canada West Foundation demonstrated in economic modelling in The Art of the Trade Deal: Quantifying the benefits of the TPP without the U.S. U.S. withdrawal from Korea is still a possibility and this would further harm agricultural exports. Talks with the European Union, the only active trade talks that the U.S. has beyond NAFTA, are dead in the water, threatening losses in that market as Canada now has its own agreement and advantages over U.S. exporters.
U.S. farmers simply can’t afford to lose any more. Which is why NAFTA is so important. Trade in agriculture and food between Canada and the U.S. has doubled since NAFTA was first signed. As Trump pulls out of trade pacts and countries balk at negotiating one-on-one with the U.S., NAFTA is the only bargaining table where U.S. agriculture interests can to try to stem further losses.
One indication of this is in the dairy sector, where, contrary to perceptions in Canada, ending supply management and gaining more access north of the border is not the U.S. industry’s priority for NAFTA. Holding on to market share in Mexico—already a much larger market for U.S. dairy than Canada—is.
Putting aside dairy, however, one addition to NAFTA that would benefit producers of other agricultural products in both countries is to harmonize key elements of the food and agricultural inspection systems.
For producers and processors in both countries, rules harmonization would bring stability and certainty to agricultural trade. It would help insulate future governments from interests who want to use differences in regulatory standards as a pretext to slow or stop trade. We’ve seen something analogous in the beef trade, where a small group of U.S. ranchers were able to get Congress to impose mandatory country of origin labelling (COOL). Canadian producers were hit with an estimated $640 million dollars a year in costs because of the move before COOL was ended two years ago.
So anything that could bring greater certainty to agricultural trade and prevent a special interest on either side from once again hijacking Congress and upsetting the apple cart would be appreciated by virtually all farmers in North America, but right now particularly by the Americans.
This idea of agriculture regulatory harmonization has been on the agenda for the binational Canada-U.S. regulatory harmonization committee, so we know the Americans have been open to the idea. Whether Mexico could, or wants to, be brought in will be part of the conversation.
But we could ask for, and more than likely receive, a harmonization concession that would benefit both countries—a win the U.S. can claim, but also a win for Canada.
Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation.