Let’s Talk About: Free Trade Agreements
While the American public might be intimidated by the complexity of trade or free-trade agreements, at the end of the day, they are very simple. Once a free-trade agreement is signed, each country is bound to tariff-free trade of goods and services. These agreements also include environmental, safety and labor standards and policies that make trade more efficient for the agreement partners.
The United States currently has 14 FTAs with 20 countries, accounting for 43 percent of the total U.S. agricultural exports. The 14 U.S. FTAs are a small fraction of the hundreds of FTAs that exist globally.
In recent years, the U.S. has been hesitant to sign new agreements and even pulled out of the Trans-Pacific Partnership (TPP) in 2017. This protectionist, “America First” mentality about trade does not actually put America first, and the success of past free trade agreements can prove it.
The North American Free Trade Agreement (NAFTA) is an FTA among the United States, Canada and Mexico. Since NAFTA began on January 1, 1994, U.S. agricultural exports to Canada and Mexico have more than quadrupled, increasing from $8.9 billion in 1993 to $38.6 billion in 2015.
The agreement removed all tariff barriers between the countries, established health and safety standards and increased intellectual property rights. Overall, NAFTA has been mostly beneficial to all parties involved. The U.S. agriculture sector benefitted tremendously from this agreement, as Canada and Mexico now account for two of the top three markets for U.S. agricultural exports.
Even though NAFTA worked well for the U.S. and Illinois, the agreement is currently being renegotiated at the demand of President Trump. While there are good reasons to reassess and modernize the agreement, Illinois has a lot to lose if negotiations are not quickly and successfully concluded.
Canada and Mexico are responsible for a 29 percent and a 14 percent market share of all Illinois exports, respectively. For Illinois agriculture, Canada accounts for 18 percent of all Illinois agricultural exports and Mexico accounts for 10 percent.
Ensuring that free trade continues among the U.S., Canada and Mexico should be the top priority of the U.S. government. Through this negotiation, Illinois Farm Bureau and American Farm Bureau Federation hope to see a reduction in regulatory costs, streamline customs and border movements and higher standards on biotech regulatory processes and animal health/traceability rules, among other improvements.
TPP was a trade agreement that included the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore and Vietnam. Combined, these countries account for 40 percent of global GDP.
The agreement’s main objectives were to establish new market-oriented rules and standards for the global market to follow and reduce trade and investment barriers. The agreement reached both goals and was on track to pass in 2016.
Unfortunately, after five years of negotiations, President Trump pulled the U.S. out of this agreement on January 30, 2017. Once the U.S. pulled out, the remaining countries, still interested in negotiating a trade deal even without the U.S., created the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). The fact that CPTPP negotiations are occurring simultaneously with NAFTA negotiations gives both Canada and Mexico more leverage in the NAFTA negotiations. This agreement also opens both Canada’s and Mexico’s market to Asia while the U.S. is left behind.
In addition to breaking bonds with these countries, the U.S. also put itself at an extreme economic disadvantage by backing out of the agreement. If the United States had remained a signatory to the agreement:
- Exports would have increased by 9.1 percent, or $357 billion, annually by 2030.
- Annual real incomes would have increased by 0.5 percent of U.S. GDP or $131 billion.
- The U.S. would have experienced an increased investment from TPP countries, as companies from TPP countries already invest more than $660 billion in the U.S.
- An increase in the annual net farm income by $4.4 billion.
- An estimated 40,100 jobs would have been added to the U.S. economy by U.S. farmers and ranchers.
The Transatlantic Trade and Investments Partnership (TTIP) is an FTA between the United States and the European Union (EU). Combined, the U.S. and the EU account for half of the world’s GDP. The ratification and implementation of this agreement could boost U.S. exports by $9.6 billion.
While the current administration is not prioritizing the TTIP, it has not backed out of the agreement or ruled out a multilateral agreement with the EU. U.S. agricultural exports to the EU have declined in the past 20 years due to the frequent EU restrictions on U.S. products. In recent years, the U.S. lost markets for beef, eggs, feed grains, seed and soybean meal due to unscientific trade barriers. An FTA is a great way to regain those markets. IFB remains hopeful that a deal will be negotiated, making the EU more open to U.S. agricultural and other products.
KORUS. Another notable free trade agreement is the U.S.-Korea Free Trade Agreement, or KORUS. This agreement is important to Illinois because Korea is the third-largest importer of U.S. corn and buys large amounts of beef and pork. Ratified in 2011, the agreement brought the U.S. a 23 percent increase in exports to Korea of consumer-oriented products. In 2017, the U.S. nearly withdrew from this agreement but instead renegotiated. Negotiations concluded in March 2018, with no changes made to agriculture. Overall, KORUS has been a beneficial trade agreement to both the U.S. and Korea.
CAFTA-DR. The Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) was ratified on August 2, 2005. After this, U.S. agricultural exports to central America more than doubled, going from $1.9 billion in 2005 to $4.2 billion in 2015. The biggest agricultural market in CAFTA-DR is the Dominican Republic, and the agreement established a more transparent process for trade.
Other FTAs the U.S. remains a partner in include Australia, Bahrain, Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru and Singapore. The U.S. has more trading partners than it has FTAs.