USMCA approval critical to restoring U.S. credibility
Quick Congressional approval of the U.S.-Mexico-Canada Agreement or USMCA, while vital to maintaining $39 billion in agricultural exports as a result of NAFTA, will send much a bigger trade message to other U.S. global trading partners.
In comments to Michigan farmers attending the Michigan Farm Bureau’s annual Washington Legislative Seminar, American Farm Bureau Federation Economist Veronica Nigh said approval of USMCA, has far bigger implications.
“If we can’t renew our trade vows, so to speak, with Canada and Mexico, it seems unlikely that other countries are going to be very excited about entering into new trade agreements with the United States,” Nigh said. “Really it's more of a gatekeeper type of agreement to show the U.S. is serious on the promises that we’re making related to trade and our trade negotiations.”
Even though USMCA, the successor to NAFTA, was signed by the three countries last November, under Trade Promotion Authority rules authorized by Congress, several steps must occur before a vote, including a published list of the changes to U.S. law necessary to implement the agreement.
One final preliminary step, says Nigh, is an Economic Impact report by the U.S. International Trade Commission, due to Congress in mid-April. Even though Congress has a limited number of days to consider the trade agreement, the behind the scenes horse-trading is already in play to ensure Congressional passage once the USMCA agreement is released.
This is also the first Free Trade Agreement (FTA) that includes measures to related to biotechnology and gene editing, as well as provisions that enhance science-based trading standards among the three nations as the basis for sanitary and phytosanitary measures for ag products, as well as progress in the area of geographic indications.
Nigh said the U.S. and European Union (EU) have agreed to begin negotiations for a trade agreement, and is expected to expand the world’s largest commercial relationship, currently worth $1 trillion of trade in goods and services annually and $3.7 trillion in two-way direct investment.
EU trade negotiations
While the EU has strongly resisted including agricultural issues in negotiations, the Trump Administration has insisted that agriculture be included in the talks and the negotiating objectives that were submitted to Congress on January 11, 2019, include agricultural issues.
The U.S. exported $12.7 billion in agricultural products to the EU in 2018 while the EU exported $23.7 billion in agricultural products to the U.S.
According to Nigh, disputes around sanitary and phytosanitary (SPS) measures and their impact on trade have been a significant part of the strained agricultural trade relationship between the U.S. and EU., resulting in barriers to exports of U.S. beef, pork and poultry, along with the slow approval process for biotech products.
“The biggest issues we have today are no longer tariff issues but their non-tariff barriers in the scientific realm and that's really where a lot of our issues with the EU why it's related to how they treat science,” Nigh said.
Farm Bureau is insisting that measures taken to protect human, animal or plant life or health should be science-based and applied only to the extent necessary to protect life or health. The U.S. follows a risk-assessment approach for food safety while the EU is additionally guided by the “precautionary principle,” which holds that where the possibility of a harmful effect exists, non-scientific risk management strategies may be adopted, according to Nigh.
“Farm Bureau has also asked for substantive changes to the EU approach for approving the products of biotechnology,” Nigh said. “The EU system for regulating biotech products must be science-based and efficient in generating approvals for U.S. products.”
The EU systems of geographic indications (GIs) for foods and beverages that designate their production from a specific region are legally protected for their original producers. The U.S. has opposed recognizing geographical names for foods that would inhibit the marketability and competitiveness of U.S. food products.
Achieving tariff reduction and elimination is important for the future growth of U.S. exports to the EU. The average U.S. tariff for imported agricultural products is 5 percent, with 75 percent of tariff lines at zero to 5 percent tariff. For the EU, the average tariff on imported agricultural imports is 14 percent, with 42 percent of tariff lines at zero to 5 percent tariff.
What about China?
Nigh said even though trade negotiations are ongoing, the damage to U.S. agricultural exports and the fallout on the U.S. farm economy has been severe – with a long-lasting impact even after the tariff and trade disputes are resolved.
“All U.S. soybean exports to China are basically done,” Nigh said, adding that even with prices on U.S. soybeans plummeting to competitive levels even with tariffs, Chinese buyers are seeking other sources.
“As the world’s largest hog producer, China normally had a 20 percent inclusion rate for soybean meal in their feed rations,” Nigh said. “Now they are seeking not only alternative sources of soybeans, but alternative sources of protein, with a goal to reduce their overall soybean meal inclusion rates to 12 percent.”
What about recent reports of record Chinese purchases of U.S. corn? While acknowledging the 300,000 ton purchase is substantial, Nigh said it pales in comparison to the total 49 million tons of U.S. corn exports in 2018.