You may have heard about the negotiations that are ongoing regarding the North American Free Trade Agreement (NAFTA) and the rumors that are swirling about its potential termination. Here are a few thoughts on NAFTA, its relationship to farmers, and the possible effects of these negotiations.
NAFTA is a trilateral trade agreement between Canada, Mexico, and the United States. It was put in place 23 years ago in order to reduce trade costs and spur economic competition. These three countries must give each other preferential treatment by reducing tariffs for certain goods, setting the rules for labor, working toward cross-border food safety and seed access, and much more (http://www.farms.com/commentaries/update-on-nafta-renegotiations-129092.aspx). Over time, however, several hot-button issues have emerged that are creating tension between the three countries. For instance, Mexico and the U.S. are at a standoff regarding how to regulate labor laws and Canada and the U.S. are in deadlock regarding the cross-border movement of dairy products.
The Trump administration has claimed that NAFTA must be scrapped because of the significant trade deficit that the United States is running with Mexico. A trade deficit occurs when we put more of our currency into their markets then they do into ours. The current U.S. trade deficit with Mexico is running somewhere around $60 billion (https://www.brookings.edu/blog/up-front/2017/08/17/when-renegotiating-nafta-trump-should-re-evaluate-his-premises-on-international-trade/?utm_campaign=Global%20Economy%20and%20Development&utm_source=hs_email&utm_medium=email&utm_content=55491731). This isn’t all bad, but it also isn’t all good, since bilateral trade deficits are always affected by the trade relationships with multiple other countries. And while NAFTA probably won’t actually be terminated because Congress has plenty of ways to prevent the President from doing so, the current negotiations could have serious side effects on all three countries.
Over the course of its existence, NAFTA has not necessarily benefited farmers – it has benefited agribusinesses. Because it incentivizes large-scale production, NAFTA impliedly incentivizes consolidation and scaling-up of agribusiness (https://www.iatp.org/blog/201708/whats-stake-farmers-food-and-land-new-nafta?utm_source=IATP+Full+List&utm_campaign=fd65f8b586-IATP_News_January1_22_2016&utm_medium=email&utm_term=0_3f024f9ff8-fd65f8b586-74967457&ct=t(IATP_News_May_2017)). This isn’t all bad, as NAFTA has been economically good for the U.S. in several ways. However, it has hurt the small family farmer, whose route to insolvency and buy-up has been accelerated. Interestingly, there is also an argument to be made that NAFTA has caused the recent surge in the numbers and size of Concentrated Animal Feeding Operations (CAFO’s), about which I have written rather critically in several other blog posts. Many farming communities in all three countries lost their local markets once NAFTA was implemented, and much of the labor force in northern Mexico left as soon as the deal was struck to work at the Smithfield hog plants across the border in the United States (https://www.usnews.com/news/best-countries/articles/2018-01-02/trumps-nafta-renegotiations-could-help-mexican-workers).
With this background, it is not surprising that only agribusinesses are represented at the current NAFTA negotiations (http://www.680kfeq.com/2017/08/17/not-all-ag-groups-happy-with-direction-of-nafta-talks/?utm_source=IATP+Full+List&utm_campaign=fd65f8b586-IATP_News_January1_22_2016&utm_medium=email&utm_term=0_3f024f9ff8-fd65f8b586-74967457&ct=t(IATP_News_May_2017)). To make matters worse, there is almost no transparency in the current negotiations. Not a single farming representative sits at the table with these executives, so there is no reason to hope that the potential outcome would benefit family farmers (http://www.dailyyonder.com/family-farm-groups-say-nafta-talks-benefit-big-guys-agribusiness-meatpackers/2017/08/24/20974/).
Beneath all of these factions, negotiations, and partnerships is one very significant issue: investor-state settlement and arbitration (ISDS) procedures. In short, ISDS arbitration procedures allow foreign companies to sue governments over laws that undermine their profits. These suits are tried before unaccountable and unmonitored foreign tribunals, but their results can dictate United States laws (https://www.iatp.org/blog/201801/nafta-negotiations-eliminate-isds-food-and-water-security). As one might imagine, this incentivizes large multinational corporations to sue their government as soon as the market does anything other than tip in their favor. Therefore, ISDS procedures have led to a wave of large multinational corporations winning massive amounts of money from these cases and further consolidating their power. Needless to say, the American family farmer doesn’t exactly benefit from these transactions.
In my opinion, NAFTA has enough of a public benefit for it to be worthy of preservation. However, NAFTA’s emergence undeniably hurt local markets and made the life of the family farmer much more difficult. My proposal would therefore to be threefold: (1) Keep NAFTA but end ISDS proceedings, (2) use the American tax code to incentivize investment in local economies by reducing the corporate income tax for small businesses and increasing the tax benefits associated with agricultural LLC’s, and (3) use the agricultural subsidy scheme to reduce the subsidies given to large agribusinesses and create (in NBA language) “cap space” for those local markets.