While most of the attention in Washington has been focused on the impeachment of President Trump, a compromise has been reached on a very important trade agreement for the U.S. agriculture industry.
The leadership of the U.S. House of Representatives reached an agreement with leaders from the Trump administration on the United States-Mexico-Canada (USMCA) trade agreement. The House was scheduled to vote on USMCA yet this month, followed by the U.S. Senate in early January. All indications are that the USMCA agreement will pass both houes and be signed by President Trump.
USMCA is the new trilateral trade agreement between the United States, Canada and Mexico, which was agreed upon by the three counties in the fall of 2018.
USMCA will replace the current North American Free Trade Agreement, originally set up in 1994 to eliminate many tariffs and trade barriers between the three countries.
In 2017, the Trump administration challenged some of NAFTA's provisions and began working on a new trade agreement.
USMCA requires approval by all three participating countries. Mexico had given its approval to the original USMCA pact, but is now questioning some of the changes made to the labor portion of the agreement. Canada is likely to approve of the agreement.
Most experts agree that the biggest impact of the new USMCA trade agreement will probably be for the U.S. auto industry, as well as for steel and aluminum trade among the three countries. However, there are provisions related to digital trade, financial services, intellectual property, telecommunications, energy, and environmental issues that do not exist under NAFTA.
The USMCA agreement also contains key provisions for some segments of the agriculture industry, including dairy, hogs, poultry and wheat.
As part of this new agreement, all food and agricultural products traded between the U.S., Canada and Mexico that had no tariff under NAFTA continue to have no tariff. Similar to NAFTA, USMCA agreement will not eliminate tariffs on all ag products. USMCA will provide more access to the Canadian market for U.S. dairy products, poultry and eggs.
Much of the focus in the USMCA negotiations related to agriculture was on dairy provisions between the U.S. and Canada. USMCA will increase the access to ship U.S. dairy products into Canada to 3.59 percent of the annual Canadian production. This is higher than the 3.25 percent that was proposed under the Trans-Pacific Partnership (TPP) trade agreement that the U.S. chose to withdraw from in 2017. USMCA provides for specific increases in tariff-free quotas of U.S. dairy products into Canada for fluid milk, cheese, butter, ice cream, and other products.
USMCA also would eliminate Canada’s class 6 and class 7 milk pricing programs, which were limiting U.S. dairy exports to Canadian markets. It is estimated that the USMCA agreement will allow U.S. dairy exports to Canada to increase by nearly $300 million.
USMCA increases the tariff-free quotas for eggs and egg products, as well as chicken and turkey products, that can be shipped from the U.S. into Canada. The initial quotas will be allowed to increase by 1 percent per year for an additional 10 years.
As part of the USMCA deal, Canada agreed to grade U.S. wheat imports in a manner similar to Canadian wheat, and not to require a country of origin statement on the inspection certificate, both of which have been issues in the past. The two countries also agreed to collaborate on items related to seed quality and grading, as well as other seed regulatory issues.
The biggest win for pork producers is the continuation of tariff-free trading with Mexico and Canada, both of which are major export markets for U.S. pork. In 2018, U.S. pork exports to Mexico totaled $1.3 billion and to Canada totaled $765 million, accounting for more than 40 percent of total U.S. pork exports.
The pork industry also will benefit from the strong sanitary-phytosanitary (SPS) provisions that are contained in USMCA. The SPS provisions will allow for more transparency and sharing of scientific data, compliance measures, and other information among the three countries. This part of the agreement could be very important if African Swine Fever were ever to be confirmed in the Western Hemisphere.
Even though there is not an immediate trade benefit for corn and soybeans, USMCA provides easier access to Canada and Mexico for the export of those products. Enhancing the livestock export markets also helps maintain domestic corn and soybean demand in the U.S.
Mexico is the second largest export market for U.S. soybeans, trailing only China. With NAFTA, U.S. soybean exports to Mexico were four times greater than before NAFTA, and U.S. soybean sales to Canada doubled.
U.S. agriculture exports to Canada and Mexico grew under the first 23 years of the NAFTA agreement from less than $9 billion per year to more than $38 billion per year by 2016.
Trade with Canada and Mexico accounts for about 28 percent of the total annual U.S. ag exports. In 2016, U.S. ag exports to Canada were valued at just more than $20 billion; the leading products were grains and feed, animal products, fruits and vegetables, oilseeds, and horticulture products. U.S. ag exports to Mexico in 2016 totaled nearly $18 billion, with the top products being animal products, grain and feed, and horticulture products. Mexico is either the largest or second largest export destination for U.S. beef, pork, poultry, wheat, corn, soybeans and dairy products.
While not everyone is in total agreement with the USMCA agreement, many experts believe it is a step in the right direction to address the trade issues that have been affecting sales and profitability in some industries, especially certain segments of the U.S. agriculture industry. Most segments of the ag industry are pleased with USMCA agreement.