NAFTA withdrawal could negatively impact US food, ag
Oct. 31, 2017
by Jay Sjerven
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Ending NAFTA may cost 50,000 jobs in the food and agriculture industries and reduce the GDP of the farm sector by $13 billion.
WASHINGTON – Eighty-seven food and agricultural organizations on Oct. 25 dispatched a letter to Wilbur Ross, secretary of commerce, disputing his recent assertions that there is no world oversupply of agricultural products and that the threat to American agriculture from a United States withdrawal from the North American Free Trade Agreement was an “empty threat.”
Secretary Ross made his observations during a panel discussion in Washington on Oct. 12. Ross said, “As far as I can tell, there is not a world oversupply of agricultural products. Unless countries are going to be prepared to have their people go hungry or change their diets. I think it’s (the assertion a withdrawal from NAFTA would harm US agriculture) more of a threat to try to frighten the agricultural community.”
The agricultural groups in the Oct. 25 letter said in response, “We respectfully submit that notification of NAFTA withdrawal would cause immediate, substantial harm to American food and agriculture industries and to the US economy as a whole.”
The groups noted under NAFTA, US food and agriculture exports to Canada and Mexico grew by 450 percent. In 2015, the United States held a 65 percent market share for agricultural products in the NAFTA region, and in 2016, the United States exported nearly $43 billion worth of food and agricultural goods to Canada and Mexico, making the NAFTA partners the largest export consumers of US agriculture.
NAFTA also has lowered the price of various inputs throughout the supply chain — benefitting US consumers — and helped eliminate nontariff barriers, making US agriculture more competitive, the groups said. And NAFTA has provided US consumers year-round access to many forms of produce previously available only on a seasonal basis.
The groups pointed to a recent study by ImpactECON, an American consulting firm, that found if Canada, Mexico and the US returned to “most favored nation” tariff rates upon any withdrawal from NAFTA, “the negative impact on the United States will far outweigh any benefits from higher US tariffs, including a net loss of 256,000 US jobs, a net loss of at least 50,000 jobs in the US food and agriculture industry, and a drop in GDP of $13 billion from the farm sector alone,” the groups said.
The letter also described, by agricultural sector, what damage may be done should the United States withdraw from NAFTA.
In the case of wheat, the groups noted, “Prior to NAFTA, state intervention and import tariffs kept US wheat exports out of the Mexican market. Now, most US wheat state farmers rely on Mexico as their number one market. Without NAFTA, wheat from other sources will increasingly displace US wheat from the Mexican and Canadian markets.”
The groups said the United States exported $3.2 billion worth of corn to Mexico and Canada in 2016, supporting 25,000 sector jobs. “Withdrawal would cause US production to fall by an average of 150 million bushels annually, erasing $800 million in value and increasing the need for farm program payments by $1.2 billion.”
The groups said $3 billion in annual soy exports would be jeopardized by withdrawal from NAFTA as Mexico and Canada look to South America for supply.
The letter described the effects a withdrawal from NAFTA would have on 15 additional food export categories.
Even the issuance of a notice to withdraw from NAFTA while continuing negotiations would prove problematic, the groups asserted.
“The adverse effects of issuance of a notice of NAFTA withdrawal would be abrupt and particularly severe for America’s farmers, food manufactures, and agribusinesses,” the groups said. “For instance, the world grain market currently is experiencing the greatest oversupply of production since the 1980s – with the United States facing increasing competition from foreign competitors – and net US farm income has declined to half what it was just five years ago. 2018 would be an especially damaging time to lose America’s two largest food and agriculture product markets.”
The groups added, “While it has been asserted that negotiations could be completed and a new agreement approved subsequent to issuance of notice of withdrawal, but prior to actual withdrawal, that observation gravely underestimates the business complexity and contracting periods involved. We are sadly confident that issuance of a notice of withdrawal from NAFTA would trigger a substantial, immediate response in commodity markets as market-specific focus would turn to a scheduled return to trade-prohibitive tariff rates. Contracts would be cancelled, sales would be lost, able competitors would rush to seize our export markets, and litigation would abound even before withdrawal would take effect.
“Therefore, we respectfully ask that the Administration continue to seek positive engagement that would advance America’s economic interests by opening new export opportunities and by tackling non-tariff concerns our industries have identified,” the groups said. “That forward progress must begin by maintaining the ‘do no harm’ pledge toward food and agriculture trade within NAFTA renegotiation.”
Negotiators from the three NAFTA countries will reconvene on Nov. 17 in Mexico City. They earlier announced negotiations, which had initially been slated to conclude before the end of 2017, would be extended into the first quarter of 2018.