If the U.S. pulled out of NAFTA, what would happen to Canada, the United States and Mexico’s three-way trade in beef and pork?
That’s something farmers and the food industries in the three nations are trying to figure out, now that U.S. President Donald Trump has reiterated his threats to rip up the North American Free Trade Agreement, just as negotiators were getting down to the work of reforming the deal.
It’s a confusing situation that has no clear answers with trade law experts debating how much power Trump has to unilaterally break the deal without congressional approval and how much power Congress has to determine tariff rates and other matters that would apply if Trump did attempt to kill NAFTA.
“They are going to have legal issues with that,” said John Masswohl, director of government and international relations with the Canadian Cattlemen’s Association.
Martin Rice, acting executive director of the Canadian Agri-Food Trade Alliance, agreed.
“There are a lot of questions about whether the president can just take them out of a trade deal,” said Rice after returning from a visit to Mexico and hearing much debate there.
“Does Congress have to approve returning to former tariffs?”
It’s a sticky situation for Canadian farmers, who rely on the U.S. market for a significant proportion of their sales. For pork, U.S. tariffs might not be a big deal if the U.S. left NAFTA because Canada and the U.S. have essentially no tariffs.
But it’s different for beef with each country having considerable tariffs for “most favoured nations” with which they don’t have trade deals. Canada imposes 26.5 percent on foreign MFN beef imports that don’t have a set tariff-free limit, and each country might impose that on the other’s beef if NAFTA died.
If those ended up being imposed it would muck up the integrated North American market.
“We’d be competing for the little bit of (World Trade Organization-provided tariff-free access) that’s left over,” said Masswohl.
How about Canada-Mexico beef trade? It could probably still function as is, if NAFTA survives, and it’s not insignificant with about $100 million from Canada being shipped to Mexico last year.
However, would Canada pick up U.S. sales to Mexico that would be displaced by U.S. quitting NAFTA? Rice said it might not be that great because Mexico has many trade deals around the world and it has access to most of the world market to meet its needs.
Whether Trump’s threats should be taken seriously is hotly debated in trade circles. On the one hand, Trump has bragged in the past about his negotiating prowess, so he might just be loudly positioning the U.S. to be the driving force behind the negotiations and actually just be looking for the “tweaks” he mentioned a few months ago.
On the other hand, he ripped up the Trans-Pacific Partnership the day after he took office, so he’s not afraid to act boldly.
“It’s a threat that people need to take seriously,” said Masswohl.
Rice said there’s tremendous uncertainty over not only Trump’s threat to pull the U.S. out of NAFTA, but also about Mexico’s willingness to sign a deal with any concessions after facing the harsh words of Trump.
“It’s got to be win-win-win,” said Rice.
“You can’t have one side having to say, ‘we got crushed.’ That’s just not a viable option for most countries.”