From NAFTA to USMCA

October 2018 -

Implications of the new U.S.-Mexico-Canada trade agreement for American agribusiness

The North American free trade pact isn’t dead after all. Up against a hard deadline on September 30, Canada and the U.S. struck a deal that should keep the tripartite trade agreement in place. NAFTA is given a makeover in content as well as name – now called the United States – Mexico – Canada Agreement, or USMCA. And the agreement reflects some new and some old – a combination of original NAFTA, terms that were negotiated for the defunct Trans-Pacific Partnership (TPP), and new text that addresses the complexity of global trade as it exists today.

If ratified as expected next year, USMCA will bring the greatest amount of change to the auto industry. But agriculture has a lot at stake too. All food and agricultural products that have zero tariffs under NAFTA will remain at zero tariffs under USMCA. For sectors like grain and biofuels, the goal of USMCA was just that – preservation of tariff-free trade. But the dairy, animal protein and specialty crop sectors had more ambitious goals of reducing trade barriers.

The USMCA agreement achieves three important objectives for U.S. agriculture:

  1. A level of certainty. Free trade on the continent has been instrumental to growth for U.S. agriculture. The prospect of that changing injected uncertainty about the future competitiveness of the industry, which the new agreement generally resolves.
  2. Potential modest improvements in market access. Canada’s agricultural supply management system became a lynchpin in negotiations. The agreement opens the door for modest improvements in market access for U.S. poultry, eggs, dairy and wine.
  3. Success and intensified focus on China. Reaching a deal is widely seen as a victory for the White House and creates momentum for other ongoing trade negotiations. Administration officials can also now redouble their efforts on China talks.

However, what USMCA did not accomplish is arguably as important as what it did. Specifically, it did not provide a pathway to eliminate existing retaliatory tariffs on U.S. agricultural goods. The U.S. dairy and pork industries have been hardest hit by Mexican tariffs that were implemented in July as a response to U.S. steel and aluminum tariffs imposed earlier in the year. Negotiations to eliminate the tariffs have begun, but there is no indication of how long they will may remain in place.

 

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