The letters USMCA may not say much to most Arkansans, but to state leaders in international trade, they spell relief.
The United States-Mexico-Canada Agreement, a pending trade pact struck by the Trump administration to replace 1994’s NAFTA, has reassured Arkansas farmers and traders, offering a commodity as prized as crops and cash: certainty.
As President Donald Trump acts to level what he calls a playing field long tilted against the U.S., his replacement to the North American Free Trade Agreement “gives us some needed stability,” Arkansas Farm Bureau President Randy Veach said. “We certainly needed an agreement as quickly as possible.”
He said the state’s $3.1 billion farm export industry relies on markets built over “five, 10 and 15 years,” and said exports contribute 40 percent of the commodity dollars flowing to Arkansas farm businesses.
“If we’d had to back out of those markets, Mexico and Canada would look to other countries for crops, and that would have hurt,” Veach said.
Mervin Jebaraj, director of the Center for Business & Economic Research at the Walton College of Business at the University of Arkansas, said tensions have eased. “The biggest benefit of the renegotiation is that businesses don’t have to live with the fear of not having a trade deal. We have the assurance that we’ll know the rules for years to come.”
The United States, Mexico and Canada formally agreed to the new pact on Oct. 1, although ratification is pending and provisions would not take effect until 2020.
Melvin Torres, director of Western Hemisphere trade for the World Trade Center Arkansas in Rogers, called the economic ramifications huge in a state where agriculture is the No. 1 industry. “Canada and Mexico account for over one-third of all exports from Arkansas,” Torres said. “Arkansas exports nearly half of our total agricultural goods to Mexico and Canada.” If the USMCA can gain legislative approval in all three countries, Torres said, “Arkansas will continue to benefit from our two largest customers.”
According to the U.S. Department of Agriculture, Arkansas was 16th among all states in total agricultural exports in 2015 at $3.1 million. Seven commodities ranked the state in the national top 10, and Arkansas was first in rice production, with exports of $642 million last year.
$2.1 Billion in Trade
State exporters sent $2.1 billion in total goods to Canada and Mexico in 2017, including $1.3 billion in shipments to Canada and $851 million to Mexico, according to White House figures. Processed food, including rice, was the biggest export to those two countries at $267 million.
Exports are crucial, Jebaraj said, because Arkansas is near a saturation point for agricultural sales to other states. “U.S. consumers use about as much farm products as they can from Arkansas, so the biggest growth prospect is finding new foreign markets to sell products to.”
Trade with China has been disrupted by tit-for-tat tariffs imposed by both countries, including major steel duties, and Trump administration policies have cooled prospects for selling Arkansas agricultural goods in Cuba as well. “The Trans-Pacific Partnership also looks less likely for the U.S. now,” Jebaraj said, “so we have to have new trade deals.”
As a candidate, Trump campaigned with a particular disdain for NAFTA, calling it the “worst trade deal” ever signed by the United States. Veach and Arkansas Rice Federation Executive Director Lauren Waldrip Ward praised the president and his team for pushing through the new agreement.
USMCA provisions will give U.S. producers more access to Canada’s $19 billion-a-year dairy market, Veach noted, and will open new access for chicken and egg exports by U.S. poultry producers. It provides for expanded markets for turkey products, and on a broader economic scale offers incentives for building more cars and trucks domestically. Provisions include intellectual property protections and wage and labor requirements aimed at discouraging automakers from outsourcing jobs by chasing lower wages in Mexico.
Ward, who grew up on a Lee County farm and is married to state Agriculture Secretary Wes Ward, said the main benefit of “the new NAFTA” for rice producers is that business can continue as usual. She also praised the administration for negotiating improvements in border inspections looking for pests and pathogens on plants. The new phytosanitation protocols should resolve disputes quicker “with transparent rules and clear timelines that are designed to minimize trade disruptions,” she said.
Waiting for 2020
For now, though, little has changed, says timber expert Matthew Pelkki of Monticello. “Ratification won’t happen until 2020, so for the present, the status quo remains,” said Pelkki, a professor in the School of Forestry, Agriculture & Natural Resources at the University of Arkansas at Monticello.
The new deal benefits Canada’s forestry industry, which has faced a 20 percent U.S. duty on softwood lumber after Canada was ruled in violation of anti-dumping provisions last year.
“The big win for Canada in the USMCA is the fact that if the United States government imposes anti-dumping duties … Canada can ask for a five-member binational panel of arbiters to determine if the duties have merit based on U.S. law,” Pelkki told Arkansas Business. “Canada can also take its case to the World Trade Organization at the same time,” speeding up the dispute process.
“However,” Pelkki said, “nothing in the USMCA directly addresses or ends the antidumping duties currently being placed on lumber imports from Canada. The huge investments by Canadian lumber firms in the Southern United States allow these firms to produce wood in the United States and bypass the tariffs.”
He said that standing softwood timber in the U.S. South is abundant and cheap, “and given current forest inventories, the South is likely to continue to be the global cost leader for wood fiber for the next decade.”
Top Arkansas exports to Canada and Mexico combined in 2016 were processed food, including rice ($267 million); primary metal products ($251 million); machinery ($242 million); transportation equipment ($227 million); paper ($166 million); electrical equipment, appliances and components ($164 million); and livestock ($163 million).
Major Arkansas companies doing business in Mexico and Canada include Murphy Oil Corp., Walmart Inc., Tyson Foods, Dillard’s, PAM Transport and J.B. Hunt Transport Services.
• The Largest Forest Products Companies in Arkansas, ranked by employees in Arkansas.
• The Largest Crops in Arkansas, ranked by value of 2017 production in Arkansas.
Veach, an advisory committee member for the Office of the U.S. Trade Representative, which advises the president on trade policy, said uncertainty was depressing commodity markets before the deal.
He noted a USDA report from February that projected that net U.S. farm income would decrease to just under $60 billion this year, down 52 percent from 2013. “Just think of any industry weathering a 52 percent decrease in income,” Veach said. “So this was big; putting this deal together helps us feel better about the markets right when we really needed something to give us an uplift.”
Along with stability, the USMCA will “enable food and agriculture trade to flow more fairly to all three countries,” Veach said. “We’ll have 20 percent greater access on chicken and six times greater access on eggs into Canada, and we’ll be allowed an extra 100 metric tons of turkey products.”
Veach would like to see policies that would improve agricultural trade with China and Cuba, but he agrees with the White House that “China has not been a good player in the WTO and hasn’t been for a long time, so it was time to adjust that with them.
“We’d like to see progress in negotiations [with China], and take every advantage we can. They’ve been taking advantage of us for a while.”
Jebaraj, of the Walton College of Business, noted that the U.S.-Mexico-Canada deal does not remedy retaliatory tariffs, but he sees the agreement as a buffer to the trade war winds.
“Farm income was down even before the trade wars, and the situation was only threatening to get worse, not better,” he said. “So this trade deal is certainly a help, part of helping things not get worse.”