NAFTA Must Be Mended, Not Ended

December 01,2017
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I recently spent several days in Mexico City, which hosted the fifth round of the North American Free Trade Agreement (NAFTA) negotiating sessions, just before Thanksgiving. Following conversations there with lead negotiators from the United States, Mexico and Canada, I am cautiously optimistic about where things stand, while remaining concerned about the damage that withdrawal from this agreement would impose on America’s dairy farmers and processors.

There is reason for some optimism because, despite concern over the huge differences between the United States and our most important trading partners on some very big, difficult issues, we started to see signs in Mexico City of incremental progress. Additionally, while President Trump’s threat of withdrawal from NAFTA cast a pall over previous negotiating rounds, there was less focus on that threat as negotiators tried to move forward on some of the less controversial issues.

Our organization has worked hard to advance dairy-specific goals as priority areas for NAFTA 2.0, and we’re very pleased those goals are strongly reflected in key provisions of the U.S. government’s proposal.  We’ve repeatedly stressed that for NAFTA to generate a positive outcome for the U.S. dairy sector, the agreement must end Canada’s new Class 7 pricing scheme and provide U.S. dairy access to customers and markets north of our border. Canada is reluctant to bend on these issues, but the Trump Administration made clear in its updated negotiating objectives, released shortly before last month’s meeting, that action on these two issues is critical.

To gain a final agreement, the Ottawa government will eventually have to recognize that change in their dairy policies is needed.  Even they know that a free trade agreement is about reducing trade barriers, not erecting new trade-distorting ones like Class 7.

I am also reassured by how high-profile and impactful our parallel message on NAFTA has been: that nothing be done that would jeopardize our strong dairy trade with Mexico, including any harmful actions by Mexico on geographical indications (GIs) in their parallel trade negotiations with the European Union.

In scores of conversations with our trade negotiators and members of Congress, we have continually reminded officials that damaging our $1 billion-plus-per-year export market – a market specifically created by NAFTA – would be disastrous for America’s dairy farmers.

On GIs, we are very pleased that the U.S. government has communicated clearly to Mexico that any loss of market access into Mexico by sanctioning the EU’s attempted confiscation of common names such as asiago, gorgonzola and many other cheeses is unacceptable.

For U.S. agriculture as a whole, our collective customer base in Mexico has become an invaluable asset, one that would be placed at great risk if tariff-free access were to change. In a letter sent in October to Commerce Secretary Wilbur Ross, NMPF joined dozens of other farm groups in reminding the administration that the United States sold $43 billion worth of food and agriculture goods to Canada and Mexico last year, making our NAFTA partners the largest foreign consumers of U.S. agricultural products. We emphasized that a U.S. withdrawal from NAFTA would also disrupt critical industry supply chains, close markets, eliminate jobs, and increase prices for many of the basic goods purchased by American consumers.

There are certainly still reasons to be concerned. Specifically, while these negotiations have clearly spelled out each nation’s goals and interests, they have yet to resolve any of the stickiest points. Issues largely outside of agriculture, like rules of origin, dispute settlement, government procurement and a proposed sunset clause, are major challenges that the three countries must address.  

But we saw a ray of hope on these tough issues when Mexico’s Economic Minister proposed an alternative to the administration’s much-criticized sunset clause. Rather than simply rejecting the U.S. proposal that NAFTA terminate after five years, Minister Ildefonso Guajardo indicated a desire for periodic reviews to assess how the treaty is working. Building on that positive development, the U.S. seemed to suggest some flexibility and a possible willingness to adjust its position.

If the parties can come to agreement on this issue, it would portend the possibility of compromise on some of the other tough issues. It’s that kind of momentum that is needed to bring these negotiations to a successful conclusion.

Negotiators will get together again later this month in Washington, with more formal talks on the agenda in early 2018.  But the clock is ticking. With Mexico holding presidential elections in June, it is generally viewed that major progress toward an agreement must be achieved by the end of March. The longer this process drags on, the greater the likelihood that an impasse could derail the negotiations. So this recent progress – though small – is important.

All negotiations must carefully calibrate competing agendas and achieve balanced trade-offs. Hopefully the NAFTA parties are beginning to recognize that progress comes only through dialogue that strengthens the pact by addressing its shortcomings.  NAFTA can be modernized and improved, and a key part of that for our industry is fixing a major shortcoming: Canada’s egregious dairy policies – both on Class 7 and market access.

In addition, the final agreement must maintain the great progress that the existing NAFTA agreement has created for our growing dairy trade with Mexico, our most important market.

While we have a long way to go, and the negotiations could still founder, the small signs of progress are positive. Now is the time to pick up the pace.