NAFTA Mischief in Fruits and Vegetables

A little noticed bullet point in the Trump administration’s "Summary of Objectives for the NAFTA Renegotiation" might sound harmless enough to some. It proposes to expedite the process by which American growers could halt an influx of imports of Mexican produce like tomatoes, avocados, bell peppers, cucumbers, and watermelons. But like some other objectives outlined by the United States Trade Representative (USTR) this summer, this provision would create serious mischief and harm not only US consumers but also other US growers.

The language of the provision promises that the administration will “seek a separate domestic industry provision for perishable and seasonal products in AD/CVD [antidumping/countervailing duty] proceedings.”[1] The goal is to create a special, fast-acting mechanism for limiting US imports of Mexican fruits and vegetables, which could be triggered by growers in a specific state, such as California, Florida, or Georgia, disregarding the experience of farmers in other parts of the United States. Moreover, the “period of investigation” (POI) to certify an antidumping or countervailing duty complaint could be as short as a few months, when inexpensive Mexican tomatoes compete with Florida, or inexpensive Mexican avocados compete with California. US penalty duties resulting from the new mechanism could sharply raise the prices American households pay for fresh produce at times of the year when the Mexican harvest is plentiful.

US growers of fruits and vegetables sold to Mexico and Canada would also be victims of the new mechanism

But US consumers would not be the only losers. US growers of fruits and vegetables sold to Mexico and Canada would also be victims of the new mechanism—for example, California growers of stone fruit (apricots, peaches) and Washington growers of apples. As well, the protectionist mentality might carry over to field crops, such as corn, soybeans, and wheat, which the United States exports in large volume. Table 1 lists US-Mexico trade statistics for perishable and seasonal products, as well as all agriculture. Evidently the United States is a big net importer of fruits and vegetables, while Mexico is a big net importer of field crops.

Thanks to NAFTA, North American consumers now enjoy a much wider variety of fresh produce at lower cost. In 1993, for example, US two-way trade with Mexico in perishable and seasonal products was just $1.7 billion; in 2016, the figure reached $12.5 billion.

Supply chains in the fresh produce industry have dramatically evolved in the past two decades. Prior to NAFTA, grocery chains like Safeway or Giant would separately negotiate with tomato growers in different locations corresponding to different growing seasons. Now, distributors with a continental reach contract with the food chains to supply agreed volumes at specified times in the calendar year. In turn the distributors contract with growers all the way from the south of Mexico to different regions of the United States, and even Canada. This business model would be seriously interrupted if potshot trade remedy cases could be launched by a small number of growers in any of the three NAFTA partners.

Table 1 US two-way trade in fruits and vegetables with Mexico US exports to Mexico (millions of dollars) US imports from Mexico (millions of dollars) US two-way trade with Mexico (millions of dollars) Product 1993 2016 1993 2016 1993 2016 Selected items Tomatoes 10 1.7 325 2,056 336 2,058 Avocados - - 0.9 1,825 0.9 1,825 Cucumbers - - 92 510 92 510 Apples 57 231 - 1.2 57 232 Peaches 3.5 26 0.2 0.3 3.7 27 Watermelons 2 9 59 380 61 389 Subtotals All fruits 113 629 660 5,713 773 6,342 All vegetables 32 73 917 6,123 949 6,196 Subtotal, fruits and vegetables 146 702 1,576 11,836 1,722 12,538 All agriculture 1,528 6,780 1,700 12,195 3,228 18,975 Note: Trade data is based on six-digit Harmonized System (HS) codes. Agricultural products cover cash grains, field crops, vegetables, fruits, and horticultural specialties. All figures rounded to the nearest million. A dash indicates less than $500,000. Source: World Bank's World Integrated Trade Solutions database.

If USTR Ambassador Robert Lighthizer pressures Mexico and Canada to accept the perishable and seasonal proposal, consumers in all three countries will lose. So too will farmers who are shut out of North American markets at the peak of their growing seasons. Of course, other farmers will gain when trade barriers enable them to charge higher prices. But the real winners will be trade lawyers who will earn handsome fees by bringing fast-action cases.

Enriching trade lawyers and impoverishing American households should not be objectives of NAFTA renegotiation.

Note

[1]. The current proposal revives a similar suggestion that the United States tabled at the World Trade Organization (WTO) in 2006 and that was never adopted. See the WTO document TN/RL/GEN/129. This document outlines conditions of agricultural products to be regarded as “seasonal and perishable”: (1) The products are fresh or chilled products under the harmonized system codes 0701 through 0709, and 0803 through 0810; (2) the products are marketed in raw form for consumption without “further processing;” and (3) the products are marketed within eight weeks after harvesting.