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Congressional Think Tank Outlines Agricultural Trade “Modernization” Opportunities in NAFTA Talks

Posted June 23, 2017

A new report published yesterday by the Congressional Research Service, a public policy research agency within the U.S. government, says that renegotiation of the North American Free Trade Agreement could provide the opportunity to improve and “modernize” a number of issues currently affecting American farm goods exporters.
The report notes that many U.S. trade groups within the agricultural sector claim that NAFTA has been positive for their industry and in this regard it highlights the fact that in the more than two decades since the deal was implemented, the value of U.S. agricultural trade with its NAFTA partners has increased sharply, with exports growing from $8.7 billion in 1992 to $38.1 billion in 2016 and imports rising from $6.5 billion to $44.5 billion.

Although NAFTA resulted in tariff elimination for most agricultural products and redefined import quotas for some commodities as tariff-rate quotas (TRQs), the report points out that some goods — such as American exports to Canada of various dairy and poultry products — are still subject to extraordinarily high above-quota tariffs.

In addition to tariffs and quotas, NAFTA addressed sanitary and phytosanitary (SPS) measures and other types of non-tariff barriers that may limit agricultural trade. “SPS regulations are often regarded by agricultural exporters as one of the greatest challenges in trade, often resulting in increased costs and product loss and disrupting integrated supply chains,” the report says.

The CRS identifies three key areas where potential to “modernize” the agreement exist:  

Improving agricultural market access

Liberalize remaining dutiable agricultural products that are still subject to TRQs and high out-of-quota tariff rates. In this regard, the report states that “USDA officials believe there are opportunities to expand U.S. exports of dairy, poultry, and eggs to Canada and Mexico and to even further expand U.S. agricultural exports overall, such as expanding corn exports to Mexico to help meet that country’s goals to blend ethanol into its fuel supply.”

However, the report cautions that “challenges remain in negotiating additional access of these exempted products, especially for milk and dairy products, given Canada’s domestic subsidy and pricing policies,” which it observes many U.S. farm groups and other competitive dairy-exporting countries believe are a fundamental violation of Canada’s commitments under a wide range of international trade agreements.

Updating NAFTA’s SPS provisions

Address SPS concerns in agricultural trade by “going beyond” existing World Trade Organization (WTO) rights and obligations by addressing certain requirements including risk assessment, transparency, and notification, as well as building in additional rapid response mechanism and enforcement.

The report notes that both the Trans-Pacific Partnership and the Transatlantic Trade Investment Partnership trade negotiations have already hammered out standards that generally meet these objectives – despite certain groups claiming “that efforts to modify SPS rules are an attempt to dismantle food safety regulations that some food companies view as impediments to trade and production” – and could therefore be seen as providing a blueprint for resolving SPS issues in the NAFTA renegotiations.

Addressing other trade concerns

Aim to resolve long-standing trade disputes between the United States and its NAFTA partners, many of which are routinely documented in the U.S. Trade Representative’s annual National Trade Estimate Report on Foreign Trade Barriers (NTE) report.  With respect to Canada, these include:

  • Restrictions on the sale, advertising, or importation of seed varieties that are not registered in the prescribed manner;
  • Cheese compositional standards that limit the amount of dry milk protein concentrate (MPC) that can be used in cheese making, restricting access of certain U.S. dairy products to the Canadian market;
  • Supply management systems regulating Canada’s dairy, chicken, turkey, and egg industries involving production quotas, producer marketing boards to regulate price and supply, and tariff-rate quotas;
  • U.S. concerns involving Canada’s concessions to the EU as part of its trade agreement involving GIs, which may restrict the sale of certain U.S. products to Canada;
  • Restrictions on U.S. grain exports due to Canadian statutory grades, which are reserved exclusively for grains grown in Canada;
  • Restrictions within Canadian provinces that restrict the sale of wine, beer, and spirits through province-run liquor control boards; and
  • Canadian restrictions involving trade in softwood lumber.

An additional concern the CRS suggests should be addressed in the NAFTA renegotiation is the binational dispute settlement mechanism (Chapter 19) to review trade remedy decisions. Canada and Mexico sought this provision in NAFTA as a check on what they considered ofen unfairly biased anti-dumping and countervailing duty decisions rendered by U.S. administrative agencies.

Primarily due to the long-running dispute over softwood lumber, certain U.S. lawmakers have called for elimination of Chapter 19 and some industry lobby groups have even contended that the provision is unconsitutional. The Trump administration has previously stated that NAFTA renegotiation will consider stakeholder concerns regarding Chapter 19 and also “look to improve on what was achieved in the TPP agreement.”