Legislative Watch: Congressional Research Service reports tariffs would skyrocket without NAFTA; Senators ask for analysis of NAFTA withdrawal; WOTUS delayed for two years.

P. Scott Shearer, Vice President

November 22, 2017

4 Min Read
Report: NAFTA withdrawal would put a big hurt on U.S. ag

U.S. agriculture will likely face higher tariffs and reduced market share in Canada and Mexico if the Trump administration withdraws from the North American Free Trade Agreement, according to the latest Congressional Research Service report, “Potential Effects of a U.S. NAFTA Withdrawal: Agricultural Markets.” The CRS report looks at the potential economic effects on U.S. agriculture on the U.S. withdrawing from NAFTA.

The report assumes the United States, Canada and Mexico would revert to most-favored-nation tariff status. Returning to MFN tariffs would take pork tariffs from 0 to 10%, beef from 0 to 25%, chicken from 0 to 75%, wheat from 0 to 67% and high fructose corn syrup from 0 to 75%. Thus, MFN tariffs on U.S. agricultural exports would increase the cost of U.S. products, making them less competitive in Canada and Mexico, which could result in reduced quantities sold.

According to CRS, potential ways that U.S. agricultural markets could be affected if the United States were to withdraw from NAFTA:

Higher tariffs on U.S. agricultural exports and imports. NAFTA withdrawal could result in the removal of trade preferences and customs duties among the United States, Canada and Mexico, and duties charged for traded goods could revert to MFN tariffs, which would be higher for certain products.

Reduced U.S. agricultural market share in Canada and Mexico. Higher MFN tariffs could make U.S. agricultural products relatively more costly while competing products from other countries could become more price-competitive (especially among countries with which Canada and Mexico have free trade agreements or trade preferences). Increased cost of U.S. products could prompt Canada and Mexico to diversify their product sourcing or seek alternative markets for other reasons — including loss of confidence and reliability in U.S. trade policies and commitments.

Higher prices for imported products from Canada and Mexico. Higher MFN tariffs and loss of trade preferences could raise U.S. consumer prices and reduce product choices while also raising the cost of imported intermediate goods, inputs and ingredients used in U.S. value-added production and manufacturing.

Reductions in Canadian and Mexican imports that compete with U.S. products. Higher MFN tariffs on U.S. imported products could push up prices and reduce imports of some agricultural products that are currently more price-competitive or out-competing some U.S-produced products, such as in-season fruits and vegetables imported from Mexico.

Disruption of integrated supply chains. Established relationships between U.S. food producers and manufacturers and their Canadian and Mexican counterparts could become complicated by the loss of NAFTA-related trade preferences and an increase in certain non-tariff barriers to trade, including sanitary and phytosanitary measures, customs charges, permits, quotas, trade regulations, import licenses and border restrictions

General market disruption and uncertainty. NAFTA withdrawal could make it more difficult for U.S. agricultural sectors to plan. Removal of other types of trade preferences intended to facilitate trade — for example, SPS and other non-tariff dispute resolution mechanisms — could also disrupt trade and complicate business planning.

Economic impacts to some agricultural-producing border states. U.S. states along the northern and southern borders that may be more heavily reliant on cross-border trade could experience more economic disruption.

Decrease of future negotiating leverage of the United States. The United States could decrease its ability to influence the terms of trade and trade-related policies and regulations, including SPS measures quotas and related food safety laws, among other types of non-tariff barriers, as well as cross-border environmental and labor practices and standards.

Senators ask for economic analysis on NAFTA withdrawal
A bipartisan group of Senators has asked Secretary of Commerce Wilbur Ross to provide an economic analysis of the effects on U.S. agriculture as a result of any changes to the North American Free Trade Agreement including withdrawing from NAFTA.

In a letter to Ross, 18 Senators say, “It is imperative that before any changes are made to NAFTA, or any other free trade agreement, that economic analysis that illustrates the impact on the full supply chain of the industries involved be shared. As such, we request an economic analysis that examines and evaluates the impacts to crop and livestock sectors as a result of any change to NAFTA.”

Sens. Heidi Heitkamp (D-ND) and John Boozman (R-AR) organized the Senate letter.

There is growing concern in the agricultural community of where the administration is headed on NAFTA. Recently at a Wall Street Journal event, Ross said the United States could withdraw from NAFTA without any major repercussions.

EPA proposed delaying WOTUS by two years
The U.S. Environmental Protection Agency and the Army Corps of Engineers are proposing to delay by two years the effective date of the 2015 Clean Water Rule which defined the “waters of the United States.”

WOTUS redefined and expanded the bodies of water that are subject to the Clean Water Act. EPA and the Corps are proposing that the 2015 rule would not go into effect until two years. This proposal would give the agencies the time needed to reconsider the definition of “waters of the United States.”

Implementation of the 2015 rule is currently on hold because of the U.S. Court of Appeals for the Sixth Circuit’s nationwide stay of the WOTUS rule. However, the stay may be affected by a pending case before the U.S. Supreme Court.

About the Author(s)

P. Scott Shearer

Vice President, Bockorny Group, Inc.

Scott Shearer is vice president of the Bockorny Group Inc., a leading bipartisan government affairs consulting firm in Washington, D.C. With more than 30 years experience in government and corporate relations in state and national arenas, he is recognized as a leader in agricultural trade issues, having served as co-chairman of the Agricultural Coalition for U.S.-China Trade and co-chairman of the Agricultural Coalition for Trade Promotion Authority. Scott was instrumental in the passage of China Permanent Normal Trade Relations and TPA. He is past chairman of the USDA-USTR Agricultural Technical Advisory Committee for Trade in Animals and Animal Products and was a member of the USAID Food Security Advisory Committee. Prior to joining the Bockorny Group, Scott served as director of national relations for Farmland Industries Inc., as well as USDA’s Deputy Assistant Secretary for Congressional Affairs (1993-96), serving as liaison for the Secretary of Agriculture and the USDA to Congress.

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