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Do no harm when renegotiating NAFTA

A lot has changed since the North American Free Trade Agreement was signed in 1994. So shouldn't we look for ways to improve and update the deal between the United States, Canada and Mexico?

President Donald Trump thinks so. After initially calling it a "disaster" on the campaign trail, he decided to renegotiate rather than withdraw from the trade pact completely. And now the process is moving forward, with official talks scheduled to begin Aug. 16 in Washington.

In preparation for those discussions, the House Committee on Agriculture recently held a hearing to learn from some of the farm organizations who would be most impacted by the changes.

"I recognize there is a certain level of angst about renegotiating the terms of our agreement," Chairman Mike Conaway said in his opening comments. Canada and Mexico regularly are two of the top three export destinations for U.S. agricultural products, and they also remain the United States' largest suppliers of agricultural inputs. Both countries have remained essential trading partners for the U.S., accounting for roughly 28 percent of total U.S. agricultural exports in 2016.

"But let me reiterate, we have no interest in reversing any of production agriculture's hard-fought gains, and the administration has made clear that it doesn't either. In fact, the recently-released renegotiation objectives reinforced the importance of maintaining existing reciprocal duty-free market access for agricultural goods," Conaway emphasized.

Former Agriculture Secretary Tom Vilsack agreed. "NAFTA can be made so much better, for the betterment of all," he said. Vilsack, who is now the President and CEO of the U.S. Dairy Export Council, focused most of his testimony on changes needed between the U.S. and Canada on dairy trade.

Under NAFTA, "Mexico has grown to become the largest export market for U.S. dairy exports," Vilsack noted in his written testimony. "Canada, unfortunately, has created a dairy trade relationship with the United States that can best be described as heavily strained. Whenever the U.S. begins to create a small foothold in Canada's dairy market, the Canadian government creates new classifications, categories or standards to make U.S. dairy exports non-competitive with domestic product."

Vilsack noted that the most recent manifestation of this practice was witnessed earlier this year with Canada's new pricing scheme — essentially wiping out an export market for ultrafiltered milk that U.S. processors had developed and for which many U.S. dairy farmers had come to rely upon as a market.

But dairy isn't the only area in need of a fix. The U.S. poultry industry sees the NAFTA modernization effort as a potential avenue for further improvement, noted Kevin Brosch, international trade counsel for the USA Poultry and Egg Export Council and another witness at the hearing.

"In our view, the recent preliminary negotiations between the U.S. and Canada in the context of the proposed Trans-Pacific Partnership (TPP) agreement has provided indications where those improvements could occur," he noted in his written testimony.

Under TPP, Canada and the United States had reached preliminary agreement on increasing the quotas for U.S. chicken into Canada. Brosch said this would represent "modest improvements in trade liberalization but would not represent threats to current domestic policies or create market disruptions."

The U.S. industry also believes that there should be similar increases in the market access for U.S. turkey and turkey products. "Access to the Canadian market for U.S. turkey products is currently very small and increased market liberalization is warranted," Brosch said.

Whatever changes are made in NAFTA, farm groups say the sooner the better.

That's because the uncertainty surrounding the overhaul has some importers — mostly in Mexico — turning to other suppliers to get the chicken and grain they need.

Corn, sorghum and barley exports to Mexico are down about 7 percent as buyers there begin purchasing more from South American suppliers, and the situation will get worse if the NAFTA negotiations become protracted, Floyd Gaibler, a director at the U.S. Grains Council, told lawmakers.

Much of the uncertainty that is shaking importers originates from the White House. President Donald Trump has repeatedly threatened to just pull the U.S. out of NAFTA and that has importers worried, Gaibler said.

The threat "prompted the Mexican government to look to Brazil and Argentina for alternatives sources of corn and other grain products," he said. "We have strong but unconfirmed evidence that Mexico is slated to purchase between seven and eight cargoes of corn from South America beginning in August and September."

Government and trade sources have set the end of the year as their goal for wrapping up the NAFTA overhaul, but that's far from certain.

U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee last month that he wants a speedy resolution but could not commit to a date. "There are people who have talked about this being done by the end of the year," Lighthizer said. "That might happen ... From my point of view, I don't have any deadline."

Ag sector representatives fear exports will continue to fall if negotiations aren't concluded by the end of 2017. "If we don't get this negotiation done by the end of the year, we anticipate that this erosion will continue," Gaibler said. "And all of us who are in the international export business know that once you lose market share ... it's very difficult to recover it."

Committee Chairman Mike Conaway was more upbeat about the situation, saying he had faith in the Trump administration to get the best new deals possible with Mexico and Canada. "Whether you're focused on maintaining current market access or you are eager for the prospects of expanded trade opportunities, production agriculture stands to benefit from a modernized trade agreement with our neighbors to the north and south," he said. "As always, we must stay vigilant and all work together to ensure we achieve the best deal possible for American agriculture."

Editor’s note: Wyant is president and founder of Agri-Pulse Communications Inc. Agri-Pulse Editor Philip Brasher contributed to this report. Agri-Pulse Senior Trade Editor Bill Tomson contributed to this report.

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