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Global agri trade policy and prospects in a changing world | Part one - US focus

Chris Horseman:

Hello, and thank you very much for joining us for this podcast from Informa Agribusiness Intelligence. I’m Chris Horseman, Editorial Director for Agribusiness Intelligence here in London. This is the first in a regular series of podcasts in which expert analysts from Informa Agribusiness Intelligence share their insights about what’s going on in the world of agriculture, food and related business sectors. Every couple of weeks we’ll be speaking with different analyses about the subjects that matter to them and to you. They’ll be drawing on their years of experience and contrasting geographical viewpoints to bring you fresh perspectives on those key topics for agribusiness professionals.

For this podcast our focus is on international trade policy, where it’s headed and what it might mean for the agri-food sector. This is in fact the first of a two-part series on international trade policy. In part two we’ll return to look at policy in Europe and the EU, but in this first podcast, the focus is primarily on the United States. So in this era of growing scepticism about the benefits of globalisation, with the election of Donald Trump in the USA and with Brexit shaking up the European Union, are we heading for a new paradigm in which long-term expansion in international trade is no longer a political priority? Or will the imperatives of economic growth inevitably re-assert themselves once the initial shocks have been absorbed?

To discuss these questions and no doubt many more, I’m joined by my colleague Roger Bernard, policy analyst with Informa Economics. Roger is an experienced journalist and a seasoned analyst and observer of agricultural and trade politics in the United States. Roger, welcome, thanks for joining us today.

Roger Bernard:
Pleasure to be here, Chris. 

Chris:

Okay, so President Trump has been in office for five or six months. In that time he has signalled withdrawal from the Trans-Pacific Partnership or TPP, a re-negotiation of the North America Free Trade Agreement or NAFTA and an approach to multi-lateral trade co-operation which could probably be best described as lukewarm. So, is this a new era for international trade?

Roger:
Well, thank you, Chris. It feels like it’s been almost we’re in a second term of a presidency, the things that have happened so far. I think, you know, what we’re looking at from this president is a view that they are not necessarily against international trade but rather how the United States has put together and negotiated trade agreements in the past. That’s one very clear undercurrent that has come from this administration as we’ve seen them unfold, as they did pull out of the Trans-Pacific Partnership agreement, they indicated at that point then their focus will be on pursuing bi-lateral trade deals with the other eleven members of TPP. I think the first one out of the chute there would be probably coming in the form of Japan, so that may well give us some idea of what this administration’s focus will be. Clearly we are embarking on a different path, perhaps, for US trade policy as this administration moves forward including as I mentioned those bi-lateral deals but also with the re-negotiation of the North American Free Trade Agreement or NAFTA. So we’re entering into a new era. Whether it’s going to give us the same feel that we’ve been used to I think remains to be seen but at least this administration is definitely going to put their mark on US international trade policy.

Chris:
So in the run-up to his election, Mr Trump was very strongly putting the emphasis on putting America first and doing trade deals which worked for the USA and which benefit US producers and exporters. The reality of trade negotiations usually means that there is some compromise and that people don’t get everything that they’re looking for. So, do you think there is a significant risk of disappointment or possibly even disillusion as, sort of, the reality of trade politics starts to kick in?

Roger:
Well, I think, you know, the campaign stance taken by Mr Trump, we’ve already seen this in more than a few areas has shifted a bit. You know, he spoke very strongly about NAFTA being not a very good agreement. As we’ve, you know, moved into the process here it’s interesting to see that perhaps there are some other issues that are starting to surface relative to NAFTA as things have come out that may be impacting or at least may be directing where this administration may well hit. We’re, I think, going to be entering a period now with this president indicating that they will now re-negotiate NAFTA, they have sent that notification to the US Congress. That starts a 90-day clock ticking before those negotiations can start, so perhaps maybe one of the first glimpses we’re going to see is this process of re-negotiating NAFTA. That will not start now until sometime near the end of August so as the negotiating stance starts to take shape, that I think is going to give us an idea of what’s happening. The trade policy has already come in to play because we had reports a few weeks ago that indicated Mr Trump was ready to pull the United States out of NAFTA immediately, that was quite a shocking development in Washington and sent a lot of people scurrying to find out what was going to happen. Well, we have a newly-installed US Agriculture Secretary in the form of Sonny Perdue.

He and Wilbur Ross, the Commerce Secretary who’s going to be another key player on the trade side and the Secretary of State Rex Tillerson. All three met with Mr Trump. Mr Perdue presented a map, an electoral map in fact, showing the states that would be hardest hit by pulling out of NAFTA immediately. Not surprisingly those were heavily rural states and of course those rural states are the very ones that put Mr Trump in office. That struck a chord with Mr Trump. He agreed at that point not to pull out of NAFTA immediately so it was a very good sign for US agriculture that that connection was made by Sonny Perdue. This could also shape the views for Mr Trump, so it’s going to be interesting to watch. Trade could be one of the more positive areas.

Chris:
Of course, NAFTA has been in existence for quite a while. Initially a US-Canada agreement, Mexico joining in subsequently and as I understand it, a very highly-integrated supply chain network has evolved on the back of that agreement. If there were to be a significant disruption of the trade flows within NAFTA, do you see particular sectors being jeopardised by that? Which are the areas of US agribusiness that are most nervous about this?

Roger:
Well, the commodities side I think is probably the biggest worry point from the agribusiness perspective. We do send a fair amount of corn north and almost 13 million tonnes of US corn moves to Mexico each year. That is a concern point for a lot in agriculture. Mexico is a very big market for US pork, also for US beef and for US poultry so there’s the combination of the crop side and the livestock side-, are very nervous about the prospects of re-negotiating this trade agreement. Again, I think with Sonny Perdue over at USDA that’s going to help keep agriculture focused that way as well. The other trade player that needs to be brought into the mix of course is US trade representative Robert Lighthizer. He has deep knowledge of how trade policy, trade rules etc work. That’s going to bring, I think, a very good factor into this debate, into this situation as he heads up the US trade representative’s office now. In fact, that’s why it’s taken a while for this notification to go to Congress that we’re going to re-negotiate NAFTA because under our rules for the trade promotion authority that was approved in 2015, that notification cannot go through to Congress until we have a USTR in place. Those agriculture sectors and meats in particular, soy beans and corn are concerned, very concerned about the prospects for trade flows being interrupted. We’ve already seen Mexico reach out to Brazil in terms of contracting some corn supplies.

We see this as really more, kind of, a hedge if you will in case things don’t go well in NAFTA but the volume of corn we’re talking about here in particular, like I said close to 13 million tonnes, there are not that many other locations around the globe that Mexico can source that product from. That, I think, kind of, underscores that you’ve got a very important sector, a sector that’s concerned in the form of US agriculture and agribusiness, but in a lot of cases there may not be a lot of other alternatives. So we’ll see how that plays in to the negotiating mix as well.

Chris:
Okay, now in contrast with NAFTA which has been around for quite a long time, the TPP, the Trans-Pacific Partnership has been axed by the US administration actually before it came into effect. To what extent has that disrupted planning by US agribusiness, which was building up presumably to the prospect of a grand trans-pacific trade agreement?

Roger:
Well, I think it will obviously affect the planning to a degree. You know, there’s still trade obviously taking place between the United States and those member countries of TPP even though we have pulled out of that agreement. You’re not going to see all the work that went into it disappear completely. I think you’ll see the provisions of TPP used as a starting point for those bi-lateral individual country negotiations that we’re going to see. The livestock sector is probably the one that stood to see the most gain or the most benefit from TPP, so they’re going to be looking to perhaps, you know, negotiate even more favourable trade terms for their sectors. Key for them is of course removing barriers and also getting a process set in place to address those non-tariff trade barriers that pop up from time to time in a trade relationship. So I think you’re going to see those TPP provisions serve as that springboard for these additional negotiations. Then these various sectors, in particular again livestock since they did stand to benefit, you know, quite handsomely if you will, from TPP. We’ll see now whether the United States can negotiate even more favourable terms on that country by country basis as opposed to trying to get agreement between all twelve countries on market access issues, on tariff reductions, things like that.

Yes, it’s affected the planning part but hopefully it may result in even some more optimism for the part of US agriculture with specific countries in that mix. Again, the livestock folks probably primarily eyeing Japan as being their biggest potential gainer there as the tariff reductions were going to come from that but they were going to take a little time to unfold.

Chris:
So as you mentioned there are twelve parties to the TPP agreement, the US’ withdrawal has left eleven of them with no agreement to go to. How do you assess the risks or the possibilities, whichever way you want to look at it, of the other TPP parties actually going it alone and forging their own trade deal, possibly leaving the US behind?

Roger:
Well, I know they’re all trying-, the headlines continue to talk about these remaining eleven countries as you say moving ahead on TPP, taking what they negotiated between the then twelve TPP members and going ahead, you know, as eleven. The key thing to remember too is while the US did get considerable access to those other eleven markets, those other eleven markets also want access in probably some key areas for them to the US market. So they’re really in a position where, well, they can move ahead with their negotiations or move ahead with the process for the remaining countries minus the United States, that’s a pretty big prize that’s no longer on the table. So it may be that they move ahead but I’m not sure that they’re going to realise the kind of benefits that they were hoping for to unfold as part of TPP that involve the United States. There again, that may bring about, you know, some more negotiating positions relative to those bi-lateral trade deals that the United States wants to seek with each one of them. So yes, I think you will probably see attempts at them moving forward but the benefits that they were to reap just will not be near as substantial under a TPP minus one.

Chris:
Okay, so moving from the Pacific coast to the Atlantic. Of course the United States has spent a fair amount of time over the last few years talking with the European Union about a possible trade and investment deal, the TTIP agreement with the US, which is currently on hold although it hasn’t been withdrawn yet. In the meantime of course, the US has now pretty much concluded its own bi-lateral trade agreement with Canada. Now, do you think that makes it more or less likely that the US will start looking once again at reactivating its own bi-lateral trade talks with the European Union?

Roger:
I think as the US looks forward their, obviously, first focus is going to be on our northern and southern borders with the renegotiation of NAFTA. So I think that may move negotiations with the EU down a little bit on the priority side. However the interesting wrinkle to all this is that while we had undergone the TTIP negotiations with the EU, that was with an EU that included the UK but now with the Brexit that is probably going to cause a re-assessment of the situation between-, on the trade front with the US and the EU as we’re looking at the EU minus UK in this mix. Does that change things as far as where the negotiating focus had gone forwards so far on TTIP? Then how does the UK fall into the mix? The prior administration under Mr Obama had signalled that the UK would move to the back of the line in terms of a trade deal with United States should Brexit take place as we now of course know it did. So now this administration-, at least Candidate Trump had signalled that a UK trade deal was going to be a little bit higher on their priority list. So, you know, it’s going to be interesting to see. Do they decide to pursue perhaps a bi-lateral with the UK and maybe at the same time work on the EU minus UK trade deal?

I think there’s a lot of assessment that’s probably, I’m sure, underway in our US trade policy teams looking at, ‘Should we go this route? Or should we totally reassess and figure out what provisions in that TTIP side really were angled more towards a UK benefit versus for all then 28 countries of the EU?’ I think that assessment’s going to be very important and you might see things unfolding maybe in tandem perhaps relative to TTIP and the UK because of course all of that really needs to be, I think, fixed before we know exactly where we’re headed.

Chris:
It’s an interesting sign of the times I think, Roger, that if we’d been talking about trade policy ten years ago the dominant theme would have been the World Trade Organisation. That’s very much been pushed to the back of people’s thinking with the-, if not demise of the Doha Round then certainly its inclusion in the great deep freeze of non-activity. Do you see any prospects of any reactivation of WTO negotiations, either in the pre-existing form that was happening a few years ago? Or perhaps in a slightly different format? Or will that be really far down the list of priorities for the Trump administration?

Roger: 
I think it could be something that might be a little further down the list. Probably the biggest, you know, heartburn that arises from the WTO is that dispute settlement process and the time that it takes to negotiate or to work out these trade differences as they arise. I think provisions in the WTO agreement probably do need some updating but the problem is that, you know, we’ve moved to the point of-, we’re north of 150 countries that are involved here. It’s difficult sometimes even to get an agreement between two and three countries, let alone when you bring all of the countries of the WTO into the place. The developing world has made their voices known very loud and clear in the WTO negotiations that have taken place to date in the Doha Round and I think that’s why those negotiations have floundered. Those developing countries have insisted on certain things that the developed world has been less than keen on accepting. So I think the prospects of a big, broad WTO negotiation could be something that we may not see evolve as we saw with the predecessor to the WTO, the GAT round and the subsequent initial rounds of WTO. It still is, I think, the guiding principle for trade but it’s going to be interesting to see how things do adjust if more of these regionalised or just bi-lateral agreements become the true focus. That may well say more about whether or not this huge multi-lateral process can regain traction.

Chris:
Well, there’s certainly plenty to consider there as the events unfold. For now, we’ll leave it there. Roger, thank you so much for sharing your thoughts with us today and thank you to all of you for listening. Join us again soon for our next podcast when we’ll be looking at agricultural trade policy in Europe and the possible impact of Brexit in the years to come. For now, thanks for listening, goodbye.

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