NAFTA Debate Explores Need to Balance Free, Fair Trade for Georgia

July 31, 2019
Trevor Williams - Global Atlanta

Mexican Consul General Javier Diaz de Leon addresses changes to USMCA and the importance for Georgia at "Navigating a New NAFTA", a forum organized in part by Global Atlanta. Photo: Mexican Consulate General

Talking trade today — and especially NAFTA — often means maintaining civil discourse or delving into details, but rarely both. 

Getting too far into the weeds can lead to one side crying foul about specific disadvantages, while tiptoeing to avoid partisan passions can lead to only superficial discussion of real issues. 

Speakers from a variety of industries at Global Atlanta’s “Navigating a New NAFTA” discussion July 27 struck a balance between these two seemingly conflicting extremes as they plumbed the depths of the yet-to-be-enacted U.S.-Mexico-Canada Agreement in front of a luncheon audience of 50-plus. 

The discussion came as congressional leaders worked to hash out a plan to put the USMCA up for a vote in Congress. Republicans had wanted a vote before the August recess, while Democrats sought to address concerns over enforcement of labor and environmental standards. Mexico, which has already ratified the deal, says it will not reopen negotiations. Canada has voiced a similar posture. President Trump has provided his 30-day notice to Congress that he plans to submit the deal for a vote. 

Gary Black, Georgia’s agriculture commissioner, injected a sense of realism into the Atlanta forum, which was co-organized with the Consulate General of Mexico at the offices Smith, Gambrell & Russell to give a glimpse at how the sweeping new trade deal affects key Georgia industries.

Mr. Black, a Republican, has been at odds with the Trump administration (and former Georgia governor and now USDA Secretary Sonny Perdue) over the deal, which Mr. Black previously said would be tantamount to hanging “going out of business” signs on the doors of many Georgia growers. 

For his part, Mr. Perdue made headlines when striking back in an op-ed at a UGA study funded by the Georgia Fruit and Vegetable Growers Association, which outlined possible job losses from USMCA as a result of its failure to win new protections for small-scale farmers. 

At issue, for Mr. Black at least, are the Mexican government’s supposed plans to back the planting of about about 2.4 million acres of acreage for fresh fruits, vegetables and tree nuts, exacerbating existing concerns that the country can undercut American pricing through artificial measures ranging from direct support to less-strenuous labor and environmental standards. 

NAFTA may have meant 20-plus years of gains for U.S. agriculture as a whole, but not all growers were equally protected in the eyes a massive trade deal that made inroads for American commodity crops like corn and soybeans, to the chagrin of many Mexican farmers at the time. 

“My perspective is that when you kind of look at it with a broad brush when you say that it’s good for American agriculture, you can pull some statistics that prove that,” Mr. Black said. 

But the numbers paper over the acute losses borne by many smaller-scale farmers around the Southeast U.S., Mr. Black said. 

“There was a tomato industry in Florida pre-NAFTA; now there’s not. There was a strawberry industry that is now fading fast. There is a Georgia blueberry industry that leads the nation and has been [leading] really even prior to this agreement — which will pass. Yet we have Mexican blueberries in Alma, Ga., in the middle of our season in the big-box stores, and everybody is wondering why.”

Seated next to Mexican Consul General Javier Diaz de Leon on a panel, Mr. Black said he’s not afraid for Georgians to compete on a level playing field, and he’s not advocating for banning foreign produce, which plays a key role filling seasonal gaps for consumers. But he wanted to see some “windows of protection” in the deal that didn’t materialize. Trade should be “fit” as well as “free,” he said. 

Mr. Diaz, meanwhile, stuck with a barrage of macro-level stats, saying the effects of trade deals are best viewed from a high-level vantage point. He noted that not all Mexicans were thrilled with a deal in the mid-1990s that many saw as encroaching on their sovereignty. 

But overall, the deal fundamentally opened Mexico’s economy to the world. Now it has 10 free trade agreements covering 45 countries, an achievement the consul general said would not have happened without NAFTA prying open the once-protectionist market. 

“When it comes to the agribusiness sector, it is essential to set the record straight. Canada and Mexico are the top export markets for U.S. agriculture, totaling a combined $40 billion in 2018. In fact, more than 29 percent of all U.S. farm and food exports went to its North American neighbors last year,” Mr. Diaz said. “(NAFTA) has been successful for the producers of corn, prepared foods, fresh fruits such as apples, soybeans, pork, dairy, poultry and egg farms, beef, among others. Moreover, it supports 330,000 jobs in the United States.”

And that’s just on the agriculture side. Mr. Diaz said 6 million jobs in the U.S. depend on overall trade with Mexico alone. 

“Six million people — that is basically the equivalent of every single person living in Tennessee right now,” Mr. Diaz said, noting the complementary nature of goods made in the U.S. and Mexico. 

Car components, for instance, cross the border multiple times before assembly plants spit out a finished product. That means there is no car that is made solely in one of the three NAFTA countries, he said. 

The auto sector was one in which the Trump administration won some major changes relative to the Trans-Pacific Partnership. USMCA’s rules of origin require 75 percent of a car’s parts to be sourced from North America to qualify for tariff advantages, up from 62.5 percent in NAFTA. The Trump administration also lobbied for a provision that would require 40 to 45 percent of a car’s value be produced by workers making $16 an hour or more — a move clearly aimed at Mexico’s lower-cost labor force. Mexico also had to reform its labor laws to comply with the terms of USMCA. See a bulleted list of changes on Vox.com here

Working together leads to better North American competitiveness and higher employment overall, Mr. Diaz said. In Georgia, 330,000 jobs are dependent on U.S.-Mexico trade and investment, with about 22,558 of them in manufacturing, according to the National Association of Manufacturers. 

Forest products is another sector that has benefited from NAFTA, said Andres Villegas, president and CEO of the Georgia Forestry Association. 

The U.S. has seen NAFTA-region exports of pulp, paper, timber and other forestry products balloon to $10.1 billion from just $3.2 billion at the time of the deal’s enactment. 

Georgia, which has more planted acreage than any other state and exports about a fifth of the nation’s pulp and paper, has benefited proportionally. 

“Forestry has always been an integral part of not only our economy but also our culture in the state of Georgia,” Mr. Villegas said. “An integral part of that is markets. We have to be able to take those trees somewhere and turn them into something and send that something somewhere else.”

Companies like WestRock, Georgia-Pacific and Graphic Packaging — all with major operations or headquarters in Georgia — have seen gains from the growth in trade, and not just in consumer products like toilet paper. An uptick in manufacturing means they have customers all throughout the supply chain — Mr. Villegas pointed to Amazon delivery boxes that have grown with e-commerce, along with the cardboard used to ship a Mexico-made refrigerator back into the U.S. 

One major concern in NAFTA from the forestry perspective was the protection of companies in the region from having their assets expropriated by governments, he said, giving as an example the case of  AbitibiBowater in Nova Scotia. 

NAFTA’s Chapter 11 allows companies to claim damages from such activity in cases that were decided by an arbitration tribunal — a process known as investor-state dispute resolution. 

Such provisions have become controversial in recent trade negotiations, with opponents on both the left and right, as many arguing that they constitute a loss of sovereignty by allowing unelected and unaccountable lawyers to override national laws deemed to have harmed foreign investors. 

But UGA Terry College of Business assistant professor Tim Samples said that argument doesn’t hold water — at least as it refers to the U.S., which has never lost an ISDS case globally. 

That’s why it baffled him to see the U.S. give up those protections in the USMCA in what he called a “massive unforced error that relies on a zero-sum view of foreign direct investment.” ISDS was removed for U.S.-Canada disputes though it remains in place for cases in Mexico involving energy, telecommunications and a few other sectors. See this and more detail in a report by the Center for Strategic and International Studies

“The United States is a massive capital exporter. This stuff never burns the United States,” said Mr. Samples, a legal studies scholar whose research focuses on the interaction between companies and sovereign states.

His latest research project shows that American companies have actually recouped about $4.6 billion under NAFTA, while losing “literally nothing.” In the forestry case, AbitibiBowater received a $123 million settlement from the Canadian federal government, which was required to make the payment even though it was the province that had expropriated the property. 

The bigger question in all this, Mr. Samples said, is why the U.S. has turned its back on free trade. He explained the phenomenon by noting that capitalism “creates its own opposition” — namely the loud voices of those who lost their livelihood, versus the much larger (and quieter) majority of people who saw modest improvements.

Lisa Winton, CEO and co-owner of Winton Machine, is trying to be that louder positive voice for trade.

“I guess I am the counterweight in this panel. I am fortunate enough for our company to be the one where the gains are allocated for free trade,” she said. 

Winton has made industrial machinery that bends tubular metal parts since its founding 21 years ago. Heating and air and refrigeration are key sectors, and many of the Suwanee-based company’s customers are just across the border in Mexico, where plants are modernizing.

“A company like mine who builds automation, we capitalize on that trade and NAFTA has been a good thing for us,” she said. 

Ms. Winton recently attended a roundtable on USMCA with Vice President Mike Pence and counterparts from 15 large and small manufacturers like Coca-Cola Co., Land O Lakes,Overstock.com and others. That event was followed by a National Association of Manufacturers fly-in in mid-July during which representatives from 132 companies visited 130 members of Congress to urge USMCA approval. NAM commends the deal’s changes on intellectual property, digital trade and expanded market access in some food and manufacturing sectors, like the Canadian dairy market. 

During the roundtable, Ms. Winton heard common concerns around uncertainty and said that executives from Emerson, which makes electric motors, said it could delay orders as a result of the murky business environment. That pricked her ears. 

“A small manufacturer like mine that exports to both Canada and Mexico — we’re seeing a slowdown,” Ms. Winton said. “When a large corporation like that can put a halt on orders, it has a direct impact on a small manufacturer like myself.”

She said she will be among those lobbying her congressional representatives to bring USMCA to a vote, and she doesn’t see passage as a given. 

A bipartisan group of House of Representatives members has drafted suggested compromises USMCA and is in dialogue with the U.S. Trade Representative that should continue through the six-week recess; the reported goal is to get to a quick consensus for a vote in September upon their return from the break.