May 15, 2017

What’s Next for NAFTA?

In place for 23 years now, the North American Free Trade Agreement (NAFTA) is widely considered to be the most significant trade pact ever entered into by the United States. A source of both derision and applause, the agreement’s positive impacts have been felt unevenly depending on the region of the country or sector of the economy.

The 2016 presidential campaign saw some of the strongest rhetoric to date over the United States’ posture towards NAFTA, with some of the sharpest criticism coming from then-candidate Donald Trump. Since his election, the president and his administration have taken a less protectionist posture than many feared. However, in late April that changed, when Trump lashed out again against the agreement, indicating he was going to begin proceedings to withdrawal from the pact via executive order (the U.S. must provide both Canada and Mexico with six months’ notice prior to exiting the agreement). However, following calls with the leaders of Mexico and Canada on the same day as his withdrawal statement, he quickly reversed his position and said he work to renegotiate the agreement instead of terminating it, still leaving withdrawal as an option should renegotiations fail. As of the date of printing of this piece, that continues to be the position being pursued by the administration.


The Impacts of NAFTA

What impact has NAFTA had on the North American fresh produce industry? Since entering into force on January 1, 1994, the trade in fruits, vegetables and tree nuts between the U.S., Mexico and Canada has expanded significantly, although the benefits have not always been uniformly distributed.

In 1993, the year prior to NAFTA, U.S. growers had a $1 billion balance of trade deficit with Mexico. Since then, U.S. fresh produce exports to Mexico have increased by more than 400 percent, and imports from Mexico have risen by more than 800 percent, pushing the trade deficit to nearly $10.5 billion in 2016. The growth in exports to Mexico has been led by apples, stone fruit and tree nuts, while the import growth has been driven by tomatoes, avocados, berries and grapes.

With Canada, exports have increased $2.4 billion since the establishment of NAFTA, growing from $1.4 billion in 1993 to nearly $3.8 billion in 2016. Similarly, imports from Canada have increased by $1.4 billion during the same span. Leading export commodities to Canada include table grapes, citrus, berries, leafy greens, apples and tree nuts. Meanwhile, the U.S. has seen an increased level of tomato, potato and pepper imports from Canada.

While the produce sector has seen a considerable increase in imports as a result of NAFTA—indeed, Mexico and Canada combine to represent nearly 60 percent of fruit and vegetable imports into the United States—the U.S. has also seen significant growth in both acreage and value of overall produce production since 1993. Since the implementation of NAFTA, the total value of the U.S. fresh produce industry has nearly doubled, growing from $24 billion in 1993 to just shy of $47 billion in 2015, the last year for which finalized data is available. Likewise, the total number of U.S. acres dedicated to fresh produce has increased by 13 percent over the same period of time.

It is undeniable that NAFTA’s removal of tariffs between Canada, Mexico, and the United States has had an impact on trade dynamics for the North American produce sector. But there are also a number of other factors that have led to an evolving import and export relationship between these three countries, including labor availability, land and resource availability, consumer demand, seasonality and domestic laws.

As policy makers in Washington take a fresh look at NAFTA, Western Growers is working to identify the effects various components of our trade arrangements with Mexico and Canada have had on U.S. growers, and whether any changes could be made to make our members more competitive. As supporters of free markets, we understand free trade leads countries to grow and manufacture the commodities and products for which they have a competitive advantage. However, if our trading partners are manipulating the system, encouraging unfair practices or applying rules in non-scientific ways, these problems should be addressed.

The president has wide-ranging authority when it comes to trade policy. His administration has the authority to completely withdraw from any trade agreement without the need for congressional approval, such as it recently did with the Trans Pacific Partnership (TPP) and has he threatened to do with NAFTA via executive order. If renegotiations fail to produce an updated NAFTA and we withdraw from the agreement, Trump’s team could attempt to negotiate new agreements directly with Mexico and/or Canada, though this would be at least as difficult a task. There is also the possibility that the countries could enter into a broader TPP-type pact with multiple other countries that includes changes to the NAFTA relationship.

Any changes to the NAFTA arrangement will be potentially disruptive to the current state of trade among the three countries. Yet to be seen, and the primary question with which Western Growers is concerned, is whether changes to NAFTA will improve the relationship and business opportunities for our members.