WG advises: How to improve NAFTA
The regulations.gov website shows 12,549 comments on the renegotiation of the North American Free Trade Agreement. The comment period is closed and it may be instructive, over the next few weeks, to look at a few industry comments on the pending deal. Today, we will feature comments from Western Growers.
From comments filed by Western Growers and Matt McInerney, senior executive vice president of Western Growers, under a subhead “How to Improve NAFTA”:
As the Administration takes a fresh look at NAFTA, Western Growers has sought to identify the various components of our trade arrangements between Mexico and Canada, and explored changes that could be made that to make U.S. growers more competitive. We highlight those areas below and look forward to engaging around all these issues with the Administration.
While we are committed to seeking improvements and building upon the past successful outcomes of NAFTA in our sector, we want to underscore that any changes to the NAFTA arrangement should only be pursued in a manner that avoids disruption of trade among the 3 countries. We believe that the NAFTA has overall been a positive and we would stand in strong opposition to U.S. withdrawal from the agreement or any changes that will not serve to improve future opportunities for Western Growers members.
Minimize Trade Barriers and Promote Greater Integration Sanitary Phytosanitary Measures
In comparison to Chapter 7 Sanitary and Phytosanitary Measures of the Trans Pacific Partnership (TPP), Chapter 7 of NAFTA is rather generalized and vague in describing how partner countries carry out their responsibilities. Any renegotiation of NAFTA must incorporate the more detailed provisions found in Chapter 7 of the TPP Sanitary Phytosanitary Measures with added emphasis to the needs of highly perishable commodities.
Why is this critical? Due to the perishable nature of fresh horticultural commodities any import checks, inspection, examination, sampling, review of documentation, test or procedure, including laboratory conducted at the border by an importing party must been completed in an expedient timely fashion or else exporters face significant lost quality in their products and economic harm.
Therefore, any amendment to the SPS provisions of NAFTA should incorporate all the New Features as detailed in the TPP Sanitary and Phytosanitary Measures Chapter 7, including a consultative mechanism for seeking quick resolution allowing regulatory agencies to ensure any issue is resolved based on safety and science.
In particular, a new section in Chapter 7 of NAFTA should expand on Article 7.11 of the TPP Chapter 7 to specifically address fresh horticultural commodities recognizing the need for quick resolution of border inspections, requiring expedited movement and testing procedures to minimize potential loss of product. Such provisions should stipulate that government border inspectors have immediate access to laboratory facilities for testing of any microbial, pest, disease or pesticide related issues. Detention of any import/export shipment pending final test results should not exceed 24 hours.
Protection Against Bankruptcy
Among the various issues affecting perishable agricultural trade between NAFTA countries is that of payment security, and specifically critical to payment security is the lack of an appropriate reciprocal enforceable mechanism for protection for growers and shippers of fresh produce against non-payment resulting from bankruptcies. While the United States provides a trust mechanism as part of the Perishable Agricultural Commodities Act (PACA) involving perishable shipments within the territorial boundaries of the United States, U.S. shippers are not afforded the same protection when exporting to either Canada or Mexico. Under PACA producers are able to secure first payment against buyers who go bankrupt. Having priority for cash repayment is critical for the produce industry since our inventory will not likely be returned given its perishable nature should say a grocery store go bankrupt.
In order to create an equitable and reliable trading system for perishable agricultural commodities between the United States, Canada, and Mexico any NAFTA amendment should include provisions requiring both Canada and Mexico to establish a risk mitigation tool similar to that of the USDA-PACA Trust.9 Adoption of this risk mitigation tool would afford protection to exporters of perishable agricultural commodities in all three countries.10
Protection Against Non-Payment
Currently Mexican exporters of perishable agricultural commodities can avail themselves to the mediation and arbitration benefits of the USDA-PACA for the purpose of filing an informal complaint against a U.S. importer. By posting a bond, Canadian and Mexican exporters can also submit a formal complaint against a U.S. importer, which then goes through an arbitration process with the resulting decision is binding on both parties. In contrast, however, should a dispute arise, a U.S. exporter is limited to either filing a legal action in Canada or Mexico, or if the importer/buyer in Canada or Mexico is a member of the Dispute Resolution Corporation (DRC), may bring the matter before the DRC for a formal resolution. Unfortunately, membership in the DRC is not yet mandatory in Canada, and out of the over 1,500 member’s only 30 Mexican perishable agricultural handlers are members of the DRC.
In order to create an equitable and reliable North American trading block trading system for perishable agricultural commodities, the government of Canada and Mexico, under NAFTA, should require a license regime similar to that of the USDA-PACA, requiring all handlers of perishable agricultural commodities in Canada, Mexico and the United States, to ensure perishable commodity producers are paid in a timely fashion should a dispute arise.
Organic Integration
As part of an overarching effort to minimize trade barriers and promote integration, Western Growers would also like to encourage efforts to integrate the organic market places between the NAFTA countries. Under current agreements, the United States and Canada have an equivalency agreement with each other which means that as long as the terms of the arrangement are met, organic operations certified to the USDA organic or Canada Organic Regime standards may be labeled and sold as organic in both countries. The United States and Mexico do not as yet have such an equivalency agreement. The organic industry now accounts for roughly $50 billion dollars in annual sales.12 As part of the NAFTA talks not only should that work between the US and Mexico be completed but the NAFTA renegotiation should serve as an impetus to resolve any technical issues between the three countries on organic standards under the general provisions laid out in Article 906 of the NAFTA.
Resolve the Stone Fruit Dispute with Mexico
Mexico has imposed high levels of direct on the ground oversight of U.S. operations of certain growers and shippers as a condition for access to Mexico’s market, requiring point of origin oversight and inspections by Mexican authorities. This oversight is costly and burdensome to U.S. producers and is not the most efficient systems approach to ensure compliance. Most importantly it is not clear that these requirement are grounded in science and the claimed pest concerns are anything more than a trade barrier.13 This is a longstanding problem and while bilateral discussions have resulted in a staged reduction of Mexican oversight for California stone fruit, any NAFTA amendment to SPS measures should contain a science based and proven work plan whereby USDA-APHIS would provide any necessary oversight relating to any pest concerns.
Resolve the Fresh Potato Dispute with Mexico
Mexico prohibits the shipment of U.S. fresh potatoes beyond a 16 mile zone along the U.S.-Mexico border. This prohibition is over 15 year’s old and based on dubious scientific ground. After a decade of bilateral discussions the market appeared to be opening last year but a Mexican federal judge decision to ban the entry of fresh potatoes from the United States citing concerns that pests may cause environmental damage. This decision declared SAGRAPA’s measures unconstitutional as the measures taken by Mexico’s Ministry of Agriculture (SAGAPRA) could not guarantee the prevention of the spread of quarantine pests reportedly present in the United States. Whether this judicial action is consistent with Mexican law is unclear but after 15 years this long running dispute needs to be resolved. As it stands today it appears that a select few Mexican domestic industry players have used a combination of court action and Mexican government intervention to shield the Mexican marketplace using dubious science. This issue clearly demonstrates the need to negotiate a strong SPS measure in NAFTA Chapter 7 that relies solely on a science risk analysis conforming to relevant international standards based on documented, objective, scientific evidence.
Examine Potential Mexican Subsidization of Agriculture for the Export Market
When the NAFTA was agreed to some 20+ years ago the government of Mexico anticipated that the agreement would cause significant dislocations within the country’s agricultural sector. In order to mitigate against this Mexico set up a series of government funded programs to help subsidize and transition largely subsistence farms into a more modern marketplace.
This original subsidy structure was designed to expire in 2008 but these support measures have been extended several times and a version of which is still in place.
While Western Growers has no issue with the government of Mexico supporting subsistence farmers, we are concerned that the NAFTA agreement may not be focused upon agricultural support measures which at least in part appear to be designed to create large internationally capable agricultural firms in the fruit and vegetable sector. In that regard there are a variety of Mexican agricultural support programs that are designed to provide infrastructure to modernize production facilities as well as help purchase the latest technology and machinery.
We highlight a few here. Under the terms of these programs corporations can receive government funding to cover up to 50% of the cost of building a three hectare greenhouse among other related materials. 16 Government funding is also available to purchase the latest technology and seeds. When examining programs such as these as part of a NAFTA renegotiation the United States government should consider whether, going forward, Chapter Seven provisions of the NAFTA on Agriculture are sufficient to minimize these potential trade distortions. From Western Growers’ perspective it is one thing to support subsistence farmers, but it is quite another to provide government subsidies to build state of the art fruit and vegetable operations, operations that most likely will produce products that will be exported to the United States. One type of support is reasonable and we certainly have no objection to that, the other type of support might well be trade distortive with negative impacts on American farms and jobs.
Examine Whether Pest and Disease Inspection Needs to be Overhauled
While not strictly part of a NAFTA renegotiation it is important to acknowledge that the Administration needs to overhaul the pest and disease interdiction system in the United States. Under that system Animal Plant Health Inspection Service (APHIS) personal operating at USDA and DHS work to intercept and test potentially destructive invasive pests and disease. Before September 11 2001 these personnel were all part of USDA but in the creation of DHS the on the ground border inspectors were transferred and their job specifications slightly altered. While it is obvious that a consolidation of APHIS is not likely or possible it is critical that the Administration look to overhaul how pest and disease inspection is done. As done today this process results in random spot checks of products coming into the United States which leaves significant gaps making our nation vulnerable to invasive pest and disease outbreaks. In addition, when interdictions are done they are done using testing methods and techniques that are outdated and slow which impede legitimate flow of commerce. The Administration should conduct a comprehensive review of this system with stakeholder input to examine the system and determine what changes are necessary to improve the system.
As one suggestion perhaps the Administration can implement a pre-inspection process for agricultural importers akin to TSA Pre-Check. The idea behind TSA Pre-Check is to have individuals provide information to the government before they board airplanes which will allow the government to have confidence in those travelers and consequently allow the government to focus resources on those with whom they have less confidence. In exchange for voluntarily participating in this pre-clearance process travelers with pre-check status have advantages when they get screened at security. Perhaps a similar system can be created for agricultural producers with foreign suppliers agreeing to paperwork and 3rd party inspection of their operations in order to gain pre-clearance. Once afforded pre-clearance APHIS inspectors would have more confidence in those suppliers when they are conducting border inspections which would allow them to focus resources on others. If properly constructed this could allow the government to more efficiently inspect. While that may not be the sole solution to these concerns it might be part of a mix of suggestions to make improvements.
Conclusion
Thank you for this opportunity to highlight several areas of concern for the produce industry as the Administration embarks on a renegotiation of NAFTA. We stand ready to make improvements to an agreement that has generally served our industry well over the last 20+ years. Matt McInerney, senior executive vice president, Western Growers.
TK: Stressing that disruption or pulling out of NAFTA is no viable option, the comments from Western Growers create an ambitious set of goals for the outcome of the renegotiation, particularly relating to protection against non-payment and bankruptcy. Obtaining a PACA-like trust system in Mexico and Canada out of the reworked deal would be a home run for the industry, no doubt. Also interesting in these comments are the references to Mexico’s subsidies to largest fruit and vegetable producers/exporters. If the Trump Administration can accomplish only half of what Western Growers suggests, a redone deal will be worth the wait.
