NAFTA, no NAFTA, or Worse: TPP via NAFTA?

With President Donald Trump’s threats to withdraw from NAFTA becoming increasingly explicit, market analysts are getting jittery, agribusinesses and commodity groups are raising alarms, Republican governors are planning a White House visit, and members of Congress from Midwest farm states have ramped up their efforts to talk him down. The NAFTA renegotiation is coming at a time when farmers are already reeling from low prices and falling incomes, so it’s no wonder that the President’s bluster has some people worried. Unsurprisingly, the Trump administration has not yet conducted any analysis of what NAFTA withdrawal would mean for agriculture or other sectors. Instead, we are left to wonder if the threat to withdraw is a bluff or a real possibility.

Either way, maybe we should all take a deep breath and get some perspective – both on what withdrawing from NAFTA might mean, and what trade policies should be adopted going forward. NAFTA has failed family farmers, as well as workers and our environments, in all three NAFTA countries. Why the rush to complete negotiations in a matter of months for a NAFTA 2.0 based on the same failed policies -- with the addition of “modernization” by means of an extreme corporate wish list copy-and-pasted from the rejected Trans-Pacific Partnership?

NAFTA’s focus on increasing exports to solve the ongoing farm crisis is dangerously incomplete. NAFTA began just before the game-changing 1996 Farm Bill. U.S. farmers were promised that past policies that set floor prices and managed supply were no longer necessary: Instead, they were encouraged to expand production and export their way to prosperity. Crop prices plunged almost immediately following the ’96 Farm Bill, and since then prices have been volatile, but mostly low. IATP has calculated the extent of dumping of major commodity crops, i.e., exports at below the cost of production. As of 2015, U.S. corn was exported at 12 percent below the cost of production and soy at 10 percent below. In evaluating the impact of the current NAFTA and the potential benefits, if any, of the “modernized” version under negotiation, we can’t simply measure exports by multinational agribusiness firms. Instead, we should assess the overall impact on farmers, rural communities and our economies.

By those measures, NAFTA has been a failure. Since NAFTA, more than 2 million Mexican farmers, unable to compete with cheap imports, have been driven off their land. During the same time, more than 200,000 small and medium-scale U.S. farmers have left agriculture, while corporate concentration in seeds, processing and other aspects of production increased dramatically. As The Guardian recently reported in a wrenching article “Why are America's farmers killing themselves in record numbers?”, net farm income for U.S. farmers has declined 50 percent since 2013, and median farm income for 2017 is projected to be negative $1,325. The story is similar in Canada; as the National Farmers Union documented, between 1991 and 2011, one in four farms disappeared even as exports grew exponentially. Farm debt continues to rise in Canada, as does speculative purchasing of large tracts of land and management by investor companies.

The possibility that the U.S. could withdraw from NAFTA has set off a rush by an “army of lobbyists” to defend NAFTA at all costs. At the same time, trade negotiators for Mexico and Canada are under pressure to cut a deal fast, in order to avoid the disruption they fear should Trump fire off a missive under NAFTA's Article 2205, which allows any of the three NAFTA countries to withdraw after six months’ written notice. While the media breathlessly covers every tweet from the disruptor-in-chief and our attention is riveted on the “will-he-or-won’t-he withdraw” storyline, negotiators behind closed doors are quietly agreeing to insert corporate-friendly policies into NAFTA that even go beyond those agreed to in the TPP. 

These terrible policies may include a proposal from the biotech industry to enable imports of products with “low level” genetically engineered content, even when not yet approved in the NAFTA member countries. Inside U.S. Trade has reported that biotech negotiations for NAFTA 2.0 have “moved ahead” and that provisions could go farther than TPP “because NAFTA countries are more prepared to implement new measures than some TPP countries were.” Mexico, with the blessing of Canada, is actually seeking an energy chapter similar to the “proportionality rule” binding Canada under the current version of NAFTA, a rule that would tie its hands by requiring exports of fossil fuels, both undermining its sovereignty and constraining its ability to reduce carbon energy exports to cut greenhouse gases (GHGs). Let’s thank U.S. Senator Lindsey Graham (R-SC) for being completely honest about what a new energy chapter in NAFTA really means.  As Graham enthusiastically explained after meeting with President Trump, whom according to Graham was “very supportive of adding an energy component,” the result would be a “North American energy policy where you could build pipelines all over the place.”  And negotiators from all three countries have expressed support for sweeping regulatory harmonization and consultation procedures that go beyond the TPP and strike at the heart of the democratic process to give corporations even more influence over regulatory decisions. These procedures would incorporate a preference for deregulation and voluntary standards across government including for food safety, organics, and chemical policy.

If Trump’s withdrawal threat results in this vision for a “modernized” NAFTA, we have to ask whether it might not be better to call his bluff and see what happens. The six-month notice of withdrawal would not trigger an automatic process dissolving NAFTA, unlike the Brexit process under which the United Kingdom is leaving the European Union. In other words, the U.S. is not obligated to proceed to withdraw after giving notice. Nonetheless, were the U.S. to withdraw, there would be impacts. Some of these changes would clearly be positive, such as ending Investor-State Dispute Settlement (ISDS) established in NAFTA’s Chapter 11, which created an arbitration system just for transnational corporations to challenge public protections and government regulations that companies claim reduce future profits. This system has rightly been criticized as arbitrary, ridden with conflicts of interest, and trampling on a country’s sovereignty and democratic institutions. Corporations have used ISDS to limit water rights and food security protections and to force payment of millions of dollars after challenges to government decisions including regulating pesticides, limiting mining near pristine fishing grounds, and toxic waste disposal.

Other implications of a NAFTA withdrawal are harder to assess. Agricultural companies are worried that Mexico in particular would raise tariffs to levels that would make U.S. exports more expensive than similar goods from competitors in Brazil, Argentina or elsewhere. The U.S might raise tariffs, too. Section 125(e) of the Trade Act of 1974, which governs the withdrawal process, provides that current NAFTA duties or import restrictions would remain in effect for one year after the date of withdrawal, unless the President states by proclamation that rates are to be restored to what they would be without the agreement. This law also requires the President to recommend to Congress appropriate duty rates for effected imports within 60 days of withdrawal. These provisions envision a phasing-in period as well as Congressional involvement in setting new tariff rates.

Even if Congress and the President could not agree on new tariff levels, we’re not talking about the Wild West of trade, without any rules. Tariffs would revert to World Trade Organization (WTO) Most Favored Nation levels. Under WTO rules, Canada and Mexico have the right to raise tariffs substantially on many farm goods. The U.S. has mostly committed to lower tariff ceilings, but there are some exceptions, such as imports of red meat, for which the U.S. currently applies an 18 percent tariff on imports from non-NAFTA countries. However, all three countries could decide to apply tariff rates that are much lower than the ceilings they have committed to under the WTO’s global trade rules. A study by the Canadian Center for Policy Alternatives concluded the general impacts on Canada would be “surprisingly modest, although some sectors facing tariff peaks would be hit harder.” It is possible that withdrawing from NAFTA would generally lead to greater uncertainty over investment decisions, at least in the short term. 

It's also important, however, to consider agriculture’s place in the broader economy, especially in rural areas. Overall, agricultural trade in North America is large, but it is a small fraction of total trade, which is dominated by manufactured goods. Changes in those industries, such as more pipelines from a new energy chapter or disrupted auto supply chains from NAFTA withdrawal, would also impact rural communities, potentially including the off-farm jobs farmers now depend on to make ends meet. Agricultural production occurs within that context, and farmers should be skeptical of calls to separate their interests from those of workers and other sectors that are demanding a different approach to trade.

A broad range of civil society organizations have raised consistent proposals for different economic relations among our countries for decades. In January, several U.S. family farm groups presented a NAFTA proposal that started with a better, more transparent negotiating process and the elimination of investor-state dispute settlement. Those proposals, along with calls to improve labor rights throughout North America, are echoed by other sectors. Farm groups have also argued for new approaches to existing problems, such as restoring Country of Origin Labeling for meat and finding new ways to address dumping of farm goods. It’s too early to tell what these reckless negotiations will actually produce, but it’s a sure bet that all sectors advocating for just, sustainable and equitable trade and economies should stick together.