NAFTA 2.0 and the outlook for food trade in 2018
Prospects for the international trade of perishable food products in 2018 are uncertain as changes to key trade agreements are being considered.
Prospects for the international trade of perishable food products in 2018 are uncertain as changes to key trade agreements are being considered. President Trump made trade a major issue during the 2016 campaign, citing that many of the nation’s trade agreements were “bad deals.” Among the targets were the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). Trump has already followed through on his promises to withdraw from the TPP and initiate the renegotiation of NAFTA.
NAFTA 2.0 – what’s at stake
The future of NAFTA will have a large impact on trade of perishable food, creating uncertainty for companies importing and exporting food in North America. Overall, NAFTA represents one of the largest free trade zones in the world, accounting for $1.1 trillion in trade between Canada, Mexico and the United States in 2016 alone.
Food and agricultural products play an important role in the cross-border trade between the three countries. Agricultural exports from the United States to Canada and Mexico have increased from $8.9 billion in 1993 to $38 billion in 2015. Almost 60% of all Canadian food imports come from the United States, while over 60% of Mexican food imports come from the United States. Many of these products are refrigerated and frozen foods. The Top 5 categories of U.S. food exports to Canada are prepared foods, fresh and processed vegetables, fresh and processed fruit, pork and beef. The Top 5 U.S. food exports to Mexico are corn, soybeans, pork, dairy products and prepared foods.
NAFTA renegotiation process and status
Prior to President Trump initiating the renegotiation process, he considered announcing the U.S. withdrawal from the agreement. Formal negotiations began on Aug. 16, with meetings scheduled every 2-3 weeks through the first part of 2018. The rounds of negotiations will rotate between the three countries with the hope of completing the process in early 2018.
Mexico is scheduled to have a presidential election in 2018, placing pressure on the current Mexican administration to complete work as soon as possible. The U.S. mid-term elections in 2018 also add to the urgency for quick resolution. Canada however is not facing the same type of time pressures to complete negotiations.
As of the beginning of November, negotiators have met for four rounds of negotiations, with a fifth round scheduled for mid-November. Progress has been made on less controversial topics, including issues related to small and medium-sized enterprises and competition policy. Yet, much work lies ahead for the negotiators, and agricultural policies are among some the most challenging issues yet to be resolved.
For example, the United States has indicated its desire to provide protection for seasonal producer growers that face stiff competition from Mexican imports. In response, Mexico is considering proposals that would protect against large volumes of U.S. pork imports by imposing limits or quotas. The United States has also raised issues regarding the Canadian government’s protection of its dairy and poultry industries, which remain a high priority for Canada. These efforts to protect domestic producers will make resolving policies regarding food and agriculture more difficult.
In addition, the United States has presented a controversial proposal to include a “sunset clause” into the agreement. The provision would require all three parties to agree to an extension of NAFTA after five years, or the agreement would automatically expire. The sunset proposal has been met with strong opposition by both Mexico and Canada.
Concurrent with the rounds of negotiations, President Trump continues to threaten the potential withdrawal from NAFTA if Canada and Mexico are unwilling to meet some of the U.S. demands for change.
Withdrawing from NAFTA would take six months, and Trump may believe that the added leverage of withdrawal would lead to more effective negotiations during the 6-month withdrawal period.
Much uncertainty remains with the future of NAFTA 2.0 negotiations. Policies surrounding food and agriculture will be at the center of the debate, as the three countries try to reach an agreement, and the stakes will be high for the refrigerated and frozen foods industries in the United States, Canada and Mexico.