NAFTA Renegotiation: Issues for U.S. Agriculture

NAFTA Renegotiation: Issues for U.S. Agriculture

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June 22, 2017
NAFTA Renegotiation: Issues for U.S. Agriculture
The North American Free Trade Agreement (NAFTA)
averaged $1.1 billion per year (2012-2016). The deficit with
entered into force on January 1, 1994 (P.L. 103-182),
Mexico has grown more sharply in recent years as overall
establishing a free trade area as part of a comprehensive
U.S. agricultural imports increased more quickly than U.S.
economic and free trade agreement among the United
exports to Mexico. From 2007 to 2011, U.S. agricultural
States, Canada, and Mexico. In May 2017, the U.S. Trade
trade to Mexico consistently showed a trade surplus,
Representative (USTR) notified Congress of the
averaging $2.4 billion per year.
Administration’s intent to renegotiate NAFTA.
Figure 1. U.S-NAFTA Agricultural Trade, 1990-2016
Reactions to the announcement have been mixed, with
some industries supporting NAFTA “modernization” as a
way to address a range of trade concerns and others urging
the need to proceed more cautiously so as to not destabilize
current U.S. export markets. For example, the U.S. dairy
industry wants the Trump Administration to address
Canada’s dairy pricing policies that milk producers contend
discriminate against the United States. U.S. potato growers
also support renegotiation to address outstanding concerns
in U.S.-Mexico potato trade involving certain sanitary and
phytosanitary (SPS) and other non-tariff barriers to trade.
Other sectors—including the corn, rice, and pork
industries—worry there could be risks to existing U.S.
export markets if the negotiations were to fail and warn
against unforeseen consequences of re-opening the trade

deal. Some worry renegotiation could backfire, leading to
Figure 2. U.S. Exports to Canada, 1990-2016
tougher requirements regarding, for example, SPS and other
standards, rules of origin, additional tariffs or quotas, labor
and environmental standards, or other requirements.
Agricultural Trade Under NAFTA
Canada and Mexico are key U.S. agricultural trading
partners. Since NAFTA was implemented, the value of U.S.
agricultural trade with its NAFTA partners has increased
sharply. Agricultural exports rose from $8.7 billion in 1992
to $38.1 billion in 2016, while imports rose from $6.5
billion to $44.5 billion. This resulted in a $6.4 billion trade
deficit for agricultural products in 2016 despite trends in
previous years when there was a trade surplus (Figure 1).
Canada and Mexico rank second and third (after China) as

leading U.S. export markets. In 2016, Canada and Mexico
Figure 3. U.S. Exports to Mexico, 1990-2016
together accounted for 28% of the total value of U.S.
agricultural exports and 39% of its imports.
In 2016, U.S. agricultural exports to Canada were valued at
$20.2 billion (Figure 2). Leading U.S. agricultural exports
to Canada were grains and feed, animal products, fruits and
vegetables and related products, nuts and other horticultural
products, sweeteners, oilseeds, beverages (excluding fruit
juice), and essential oils. The U.S. trade deficit with Canada
has averaged about $0.7 billion per year (2012-2016). U.S.
agricultural exports to Mexico were valued at $17.8 billion
in 2016 (Figure 3). Leading U.S. agricultural exports to
Mexico were animal products, grains and feed, oilseeds,
sweeteners, fruits and vegetables and related products, nuts

and other horticultural products, cotton, seeds and nursery
Source: CRS using USDA data for “Agricultural Products” as defined
products. The U.S. agricultural trade deficit with Mexico
by USDA. Data are not adjusted for inflation.
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NAFTA Renegotiation: Issues for U.S. Agriculture
NAFTA Agricultural Trade Liberalization
Agricultural issues that have emerged that might be part of
a NAFTA renegotiation include:

Tariff and quota elimination. Eliminated some trade
restrictions immediately, while others were phased out
 Improving agricultural market access. Liberalize
over time. Redefined import quotas as tariff equivalents or
remaining dutiable agricultural products that were
tariff-rate quotas (TRQs). Canada excluded dairy, poultry,
exempted from the original agreement (including dairy,
and eggs for tariff elimination. The United States excluded
poultry, and eggs) and that are still subject to TRQs and
dairy, sugar, cotton, tobacco, peanuts, and peanut butter.
high out-of-quota tariff rates;

Sanitary and phytosanitary (SPS) measures. Imposed
 Updating NAFTA’s SPS provisions. Address SPS
disciplines on the development, adoption, and enforcement
concerns in agricultural trade by “going beyond”
of SPS measures regarding food safety and public health
existing World Trade Organization rights and
protection. Established a Committee on SPS Measures.
obligations by addressing certain requirements including

Rules of origin. Established that products from non-
risk assessment, transparency, and notification, as well
NAFTA countries do not quality for NAFTA tariff
as building in additional rapid response mechanism and
reductions even if shipped through a NAFTA country.
enforcement; and

Treatment of foreign investors. Established provisions
 Addressing other trade concerns. Address certain
designed to facilitate foreign investment, including equal
treatment of foreign and domestic investors and prohibition
outstanding agricultural trade disputes between the
on minimum domestic content requirements in production.
United States and its NAFTA partners (e.g., dairy and
potatoes) as well as concerns regarding geographical

Formal dispute resolution mechanism. Created a
indications (GIs), or place names that identify specific
formal mechanism for resolving disputes regarding the
products based on their reputation or origin.
agreement’s provisions including investment and services
and antidumping and countervailing duty determinations.
A number of such issues were addressed in recent trade

Export subsidies. Prohibited export subsidies in Canada-
negotiations involving the United States, including the
U.S. agricultural trade (permitted with regard to Mexico).
Trans-Pacific Partnership (TPP) agreement. Many farm

interest groups claim that a successful renegotiation would

Domestic policies/subsidies. Did not address domestic
agricultural subsidies.
incorporate many of the types of changes related to food
and agriculture agreed to in the TPP agreement, which they

Grade and quality standards. The United States and
view as a blueprint for any renegotiation of NAFTA’s
Mexico agreed to provide no less favorable treatment for
agricultural provisions. For example, the TPP agreement
like products imported for processing regarding marketing,
included commitments regarding SPS and other technical
grade/standards of a domestic product used in processing.
standards, provided for public comment on proposed SPS
measures, and provided for information exchange related to
The U.S. Department of Agriculture (USDA) and many
equivalency and regionalization for livestock disease
agricultural industry groups claim that NAFTA has
outbreaks. It included assurances that import programs be
benefitted U.S. agricultural sectors economically and the
risk-based and that import checks be carried out without
United States strategically in terms of North American
undue delay. TPP also provided for improved enforcement
relations. As part of its 2015 retrospective analysis of the
mechanisms and dispute settlement to more rapidly resolve
impacts of NAFTA on U.S. agriculture, USDA concluded
stoppages of products at the border, and it established
that “NAFTA has had a profound effect on many aspects of
certain commitments and obligations regarding GIs.
North American agriculture over the past two decades,”
Next Steps
contributing to increased market and economic integration
and cross-border investment, integrated supply chains and
The Trump Administration’s official notice sent to
improved logistical and technological communications and
Congress regarding NAFTA renegotiation does not cite
interactions. Consumers have also benefitted from generally
specific objectives for U.S. agriculture. USTR has
lower prices—due to the elimination of tariffs and quota
requested public comment on “matters relevant to the
modernization” of NAFTA, including general and product
restrictions—but also from improved consumer choices and
-
variety (e.g., imports of off-season produce/crops). Many in
specific negotiating objectives, economic costs and benefits
Congress claim that NAFTA has had a positive impact on
to U.S. producers and consumers of removing any
food and agricultural production in their states.
remaining tariffs and non-tariff barriers, treatment of
specific goods, customs and trade facilitation issues, trade
Options to Renegotiate NAFTA
remedy issues, and any unwarranted SPS and technical
Although NAFTA resulted in tariff elimination for most
barriers to trade, among other issues. USTR’s review of
agricultural products and redefined import quotas for some
submitted public comments and testimony at its upcoming
commodities as TRQs, some products—such as U.S.
hearing, as well as a forthcoming analysis by the U.S.
exports to Canada of dairy and poultry products—are still
International Trade Commission, could help inform any
subject to high above-quota tariffs. In addition, although
renegotiation of NAFTA’s agricultural provisions.
NAFTA addressed SPS measures and other types of non-
See CRS Report R44875, The North American Free Trade
tariff barriers that may limit agricultural trade in North
Agreement (NAFTA) and U.S. Agriculture.
America, SPS regulations continue to be regarded by
agricultural exporters as one of the greatest challenges in
Renée Johnson, Specialist in Agricultural Policy
trade, often resulting in increased costs and product loss and
disrupting integrated supply chains.
IF10682
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NAFTA Renegotiation: Issues for U.S. Agriculture

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