Cyclical Provisions in NAFTA Facelift Raise Anti-Dumping Concerns
October 12, 2017
The Anti-Dumping Agreement of the World Trade Organization (WTO), sometimes referred to as the AD Agreement, is, in a nutshell, designed to protect businesses in all countries, including American producers, farmers and manufacturers.
While anti-dumping hasn't received much media attention in a while, the topic has made an occasional appearance with the recent North American Free Trade Agreement (NAFTA) discussions. In a global economy, the argument of maintaining a healthy trade balance shouldn't be ignored, according to key ag industry players.
By WTO definition, a product is considered to be "dumped" if it is exported to another country at a price below the normal price of a like product in that country. Anti-dumping measures are unilateral remedies that the government of the importing country may apply after a thorough investigation has determined that the product is, in fact, being dumped, and that sales of the dumped product are causing financial harm to a domestic industry that produces a like product.
But what about seasonal timing on products? A new group, Produce Coalition for NAFTA, has taken on the anti-dumping topic, with concerns over the seasonal anti-dumping provision under consideration.
“It seeks to game the rules, tweaking the representative period to claim that a foreign product was dumped. The result will be tariffs on fruits and vegetables, just what the administration wants to avoid,”– Produce Coalition for NAFTA –
"It seeks to game the rules, tweaking the representative period to claim that a foreign product was dumped. The result will be tariffs on fruits and vegetables, just what the administration wants to avoid," the group wrote in a letter to NAFTA negotiators.
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The provision would also increase the chances of anti-dumping issues against U.S. growers.
"Since 1993, fruit and vegetable exports from the U.S. to Mexico and Canada have more than tripled, representing $7.2 billion. We jeopardize these gains by allowing Canada and Mexico to impose ruinous tariffs based on rules that use a small snapshot in time to create the false impression a commodity is "dumped" on other markets," the Coalition writes.
Avocados are the perfect example. In the winter, when California isn't growing them, Mexico is, supplying 75 to 80 percent that Americans eat. But the concern does not just lie with produce. Mexican producers have petitioned their government to impose anti-dumping duties on U.S. exports, including pork, beef, apples, corn syrup, rice and poultry. The Mexican government has prevented the petitions, but the discussions have been ripe with threats if the U.S were to begin imposing duties on Mexico's top agricultural exports – fruits and vegetables.
United States Cattlemen's Association, president, Kenny Graner, agrees, the cyclical concern is not just in fruits and vegetables. In a letter to President Trump and USTR Robert Lighthizer, Graner shares support with the fruit and vegetable industry, pointing out that cattle producers also have a perishable and cyclical agricultural product.
"Livestock and fresh meat products have long been considered a perishable and cyclical product," Graner writes. "While most recognize that fresh meat is perishable, many are not aware that livestock can also be perishable. For example, cattle that are ready for slaughter must be processed within two to three weeks of reaching their optimal weight. Once cattle are above the optimal weight, there is a significant loss in quality that results in drastic price discounts."
"Bottom line – if President Trump and US Trade Representative Lighthizer are serious about addressing the trade distortions, then they will push for strong anti-dumping provisions. Success on this provision marks a note of either a huge deliverable or a notable fail when it comes to a NAFTA promise by the President Trump on the campaign trail. All of the US cattle industry is depending on the Trump Administration to come up big, if anyone can fix this it's President Trump and members of his team," USCA's Jess Peterson added.
In another letter, signed by 27 agricultural groups, including the National Cattlemen's Beef Association, the North American Meat Institute and the U.S. Meat Export Federation, emphasis was put on finding an equal trade field, and not putting exports at risk.
"Many of our associations and companies have been the target of anti-dumping actions in Mexico or Canada. In some cases, anti-dumping duties were applied, and our exports were impaired for years," the groups share, adding that in other cases, governments intervened to prevent the duties.
"If, however, the United States were to begin imposing duties on Mexico's top agricultural exports to the United States, it would be much more difficult for Mexico to show restraint. Once seasonal tariffs were put in place for tomatoes, for example, Mexico or Canada may initiate trade cases of their own on any of a wide range of U.S. agricultural products, beginning a tit-for-tat cycle that could broadly limit agricultural trade."
The anti-dumping regulations went into effect on January 1, 1995. According to WTO regulations, a "company involved in international trade can benefit from clear and predictable rules for the application of anti-dumping measures."
U.S. ag groups seem to concur. Leaders from the United States, Mexico and Canada met in Washington D.C., Oct. 11 for round four of discussions
"Canada and Mexico are top markets for our pork, so, obviously, we don't want any disruptions in our exports to those countries; we need to keep pork trade flowing," said National Pork Producer's President Ken Maschhoff, from Carlyle, Ill. "We want to reiterate to the Trump administration that NAFTA has been a boon to the U.S. pork industry and to all of American agriculture."
Since NAFTA went into effect U.S. trade north and south of the borders has more than tripled, growing more rapidly than U.S. trade with the rest of the world, according to Council on Foreign Relations. Canada is the second largest market for U.S. agricultural products; Mexico is number three. In 2016, America's farmers exported more than $38 billion of products to the two nations, or 28 percent of all U.S. agricultural exports. Those exports generated more than $48 billion in additional economic activity and supported nearly 287,000 U.S. agricultural jobs.
Bill Bullard with R-CALF interprets the big picture differently though, and his group says the trade deficit for beef is harmful to cattle producers. Pointing to the 25-year cumulative deficit of nearly $32 billion in the trade of cattle and beef with Canada and Mexico, Bullard asserts that America has been substantially weakened by NAFTA. Using findings from economic modeling and analyses, he estimates the average annual NAFTA deficit reduces America's annual economic output by over $5 billion and costs America about 6,000 jobs each year.
"During the past three years, each time the U.S. sold Canada and Mexico about $2 billion in cattle and beef, Canada and Mexico turned around and sold the U.S. about $4 billion worth of the same commodities. It should be clear that Canada and Mexico will continue playing this game until the United States quits," he said at a NAFTA hearing earlier this year.
Bullard said these imports are a direct and often, undifferentiated market substitute for domestic beef production.
"Indeed, in their lawsuit against COOL, the packers and the National Cattlemen's Beef Association, and their counterparts in Canada and Mexico, argued that 'beef is beef whether the cattle were born in Montana, Manitoba, or Mazatlán.' This explains why the meatpacking industry supports NAFTA – it provides them with growing volumes of undifferentiated imports that they can use as strategic substitutes for domestic cattle and domestic beef to effectively lower the prices paid to U.S. farmers and ranchers for their cattle," he said.
Renegotiations of the historical trade deal has been ripe with speculation and uncertainty but each party has a main focus, with the Trump Administration ready to walk away if the U.S. focus is not in place.
The original NAFTA was signed in December 1992, and ratified in November 1993. Some argue that the dated document needs to be replaced with a new one, as opposed to a "renegotiated" one. But the one thing the countries seem to agree on, is NAFTA needs a facelift.
U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) used TPP as an example.
"While we disagreed, the President made clear that he did not support the Trans-Pacific Partnership (TPP). We were promised a series of bilateral trade agreements in its place," said NAWG CEO Chandler Goule. "USTR [U.S. Trade Representative] has limited resources — it is time to get past plowing the same fields and start opening ground in new markets. Right now, we are standing around watching the world pass us by on trade agreements."
In July, the White House released objectives for what has been referred to as NAFTA 2.0, including lowering the trade deficit with Mexico, beefing up labor regulations, and even included some focus on environmental issues. https://ustr.gov/sites/default/files/files/Press/Releases/NAFTAObjectives.pdf
The Peterson Institute for International Economics put together a 20 page policy brief on NAFTA, offering a look at both the pros and cons of the agreement. Found at https://piie.com/publications/policy-briefs/nafta-20-misleading-charges-and-positive-achievements, it analyzes the record of NAFTA in order to clear the air so that the benefits and challenges of trade can be examined objectively.
The brief, done in 2014, points out that investment, and economic interdependence among the three countries has grown dramatically. "Nearly 2 million U.S. jobs now depend on trade with Mexico. Closer integration with the United States and Canada has transformed Mexico's auto industry from a minor backwater into a major automotive powerhouse."
Job and wage losses in the U.S. are also discussed in detail, with the summary claiming that there was no lasting or significant increase in U.S. unemployment because of NAFTA.