Hi-Line Farm & Ranch December 2016: The future of ag trade and the TPP

The Trans-Pacific Partnership trade agreement between the United States and 11 other Pacific Rim nations is unlikely to be ratified during the lame duck session or after President-elect Donald Trump takes office, and this is not necessarily a good thing for agriculture producers in Montana and the U.S., some ag and economics experts in the U.S. say.

“Agriculture played very little if any role in the calculus of the politics in the election,” Vince Smith, professor of economics at Montana State University’s Department of Agricultural Economics and Economics, said.

Trump said Nov. 21 that one of his first actions in office will be to withdraw the United States from the TPP which he slammed as a “disaster” during his campaign. As of print deadline, he had not named a secretary of state, only that he had narrowed his choice down to four candidates.

The TPP, which would have been a landmark international trade deal for President Barack Obama, became a hot topic during the 2016 presidential election campaign. Neither the Republican Trump nor Democratic candidate and former Secretary of State Hillary Clinton supported the potential deal as they courted the vote from industry-based states with high electoral votes.

“Both (Donald Trump) and Hillary Clinton in their campaigns were trying to appeal to workers in industries in Ohio, Michigan, Wisconsin, Pennsylvania where those industries competed with imports from other countries,” Smith said, and this anti-trade rhetoric strongly appealed to the people in those states who feel that their jobs have been lost due to liberal trade relationships.

But in Montana, he said, where about 80 percent of agricultural production is sold in the market place, better access to markets and lower tariffs in Pacific Rim nations is crucial.

Lobbying organizations for the beef and grain industries have similar messages.

“The Trans-Pacific Patrnership is one of the greatest trade agreements that can be attributed to the ag industry,” Kent Bacus, director of International Trade for the National Cattlemen’s Beef Association, said. “The benefits we would receive from this are tremendous because it levels the playing field in the leading export markets.”

About 18,000 tariffs would be lowered or eliminated with implementation of the TPP agreement. U.S. beef, poultry and dairy exports, as well as grain and other crops such as soybeans, which are all taxed up to 40 percent would see significant reductions or elimination.

Countries that have signed the TPP agreement -- U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru -- collectively account for about 40 percent of world trade.

For an example, Bacus said, Japan, the leading importer of U.S. beef with $1.5 billion per year, levies a 38.5 percent tariff on imported beef.

“Under the Trans-Pacific Partnership that tariff rate would go from 38 ½ to 9 percent. The problem is that without the Trans-Pacific Partnership we are going to stay at 38 ½ percent,” he said, and this will equate to a significant loss in revenue and eventually business.

“We’re going to lose that to other countries who are striking trade agreements with Japan and with the other TPP countries,” he added, “so while it sounds good to bash the Trans-Pacific Partnership on the campaign trail, in reality it would be a great disservice, it would be huge to the U.S. beef industry not to have it.”

To be implemented, the TPP has to be ratified by at least six countries that account for 85 percent of the group’s economic output by February 2018. Taiwan, the Philippines, Columbia, Thailand, Laos, Indonesia, Cambodia, Bangladesh and India also have expressed interest in joining, but without the two major economic forces — the U.S. and Japan — on board, the agreement will be terminated.

The Japanese Diet, the country’s equivalent to the U.S. Congress, has already taken the first steps at ratifying the trade agreement. Japan Times reported Nov. 23 that Japan’s Prime Minister Shinzo Abe had invested political capitol to get ratification pushed quickly through the Diet’s Lower House despite opposition from his country’s farmers and medical lobby.

Abe, the first foreign diplomat to meet with Trump, asked the Diet’s Upper House to extend its session for two weeks in December, in part to get final ratification of the TPP, Japan Times said Nov. 28.

In a year when U.S. grain prices, like cattle prices, have plummeted to less than half from 2015, the possibility of benefits from the TPP were encouraging, Lola Raska, executive vice president of the Montana Grain Growers Association, said, especially since Montana grain naturally heads to the northwest for export to Pacific Rim countries.

“It included the countries that are both our most important customers and our most important competitors, so TPP was going to be good for Montana agriculture, and we’re very concerned about the direction,” Raska said.

“We grow a high volume and have a low population and we need overseas trade agreements, foreign trade agreements in order to market our commodities,” she added. “So we’re very dependent on trade agreements and we were very supportive of TPP, and it doesn’t look like that’s going to be brought up now in the lame duck and President-elect Trump has been very vocal in his opposition to TPP.”

A significant worry for U.S. producers is that without the U.S.-led TPP, other trade agreements will be made but without the U.S. included and without the U.S. setting standards in the agreement. And if the U.S. signed into any agreements after they were made, producers would have to meet those standards.

The TPP would have brought all member countries’ ag safety standards into alignment, Les Rispens, Hill County Farm Service Agency executive director, said, including helping standardize a grading system for grain quality and creating common language definitions for ag products.

This standardization applies to other ag-related issues from labor standards to veterinary inspections of cattle, Bacus said.

“We’re not lowering our standards to accommodate them,” he added, “We’re making everybody else play by our rules.”

With the increasing globilization of trade, both Smith and Bacus said, countries are looking to make trade agreements and other countries in the TPP will be looking to expand bilateral trade negotiations with Europe into something like the TPP, and start negotiations with China, which was never included in TPP talks.

Any trade deals with European countries will likely include their strict regulations against genetically modified products and for increased veterinary inspection and farm-to-fork tracking of meat animals — what Bacus called “a lot of non-science-based and protectionist rules that restrict imports.”

News reports in the U.S., Britain and Japan are saying that China is already pushing its Regional Comprehensive Economic Partnership — a 16-nation trade agreement with 10 Southeast Asia nations and six other countries, including Japan and Australia — that was shelved when many of those countries turned to TPP talks about five years ago.

Japan Times reports that the first RCEP talks are set for Dec. 2 and that Peru and Chile have asked to be included.

Organizations in the U.S. that oppose the TPP, as varied as the Sierra Club and the AFL-CIO, outline talking points similar to those heard from individuals, both private and political — including that it gives too many rights to corporations including the ability to influence or bypass U.S. regulations through private tribunals; it lacks protections for the environment such as the curbing illegal timber and wildlife trade, halting fracking and enforcing environmentally safe manufacturing; and it allows for outsourcing of jobs, services and banking, including to non-TPP compliant nations like China.

One major complaint, and not just in the U.S., about the whole process was that much of the negotiations were not open to the public, yet representatives from numerous major international corporations were called in to closed-door meetings to contribute to the talks. Some reports put the number at 600 corporations.

Little of the complaints, though, have had anything to do with agriculture, and some aspects of the trade agreement aren’t about trade, labor or economics at all.

“The concern, the broader geopolitical concern is whether the U.S. — from a political and strategic and defense perspective — is really wise to withdraw from the TPP to create a vacuum where longtime allies may form relationships with China on trade rather than the U.S.,” Smith said. “The (related) concern is about a variety of strategic and military issues, for example control of the South China Seas.”

Smith added that common sense and history suggest that despite the attractiveness of China’s large economy, the TPP countries, especially Japan, will be careful in making trade agreements with China.

“Everybody would like access to the Chinese market, it’s 1.3 billion people who now have per capita incomes of 8 to 10 thousand dollars a year, so that’s a lot of economy and a lot of market for people’s products,” he said. “On the other hand, trading with China means you’re trading with the central government quite often, or agencies that are closely tied to the central government.”

Despite the attractiveness of tapping China’s economy news media is reporting that member nations are still holding out hope that Trump will come around.

CNN Money reported Edward Alden, a senior fellow at the Council on Foreign Relations, saying previous U.S. presidents entered office skeptical about big trade deals before later changing their minds.

“What happens to every president is that they realize that trade is a very important tool in U.S. diplomacy,” he said.

Smith said now seems to be an era with an increasing push for globalization bringing about coalitions such as the European Union and trade agreements as large as the TPP, there is a counter push for nationalism bringing responses such as Britain leaving the EU and Trump winning the presidential election while promising to extract the U.S. from the TPP and possibly the North American Free Trade Agreement which has fostered trade between the U.S., Canada and Mexico since 1994.

The long-term and short-term effects of Agriculture and economy experts said that pulling out of the TPP will have little to no effect on the economy in the short term.

The TPP agreement would not go into effect until February 2018 if it were ratified, and it will likely take several years for countries to negotiate an alternative, whether it’s RCEP or, as British News Source and Japan Times suggested, the TPP countries be renegotiated without the U.S.

Plus, Rispens said, a lot of what has driven cattle and grain prices so low this year is the strength of the U.S. dollar relative to the rest of the world.

It’s the long-term ramifications that could cause problems.

“This agreement had the potential to really help international trade on the Pacific Rim and in the long-term it does have the possibility of benefiting this area, but right now we just can’t see past the strength of the U.S. dollar,” he said.

“Other things being equal, you certainly don’t want to disadvantage your exporters,” Smith said.

Raska and Bacus said their respective ag lobbying organizations will continue to educate the Trump administration and push Congress to ratify the TPP trade agreement.

“You can take those steps forward; you can always come back and make improvements along the way, but by walking away completely you lose that opportunity, you lose that ability to go in and make touch ups,” Bacus said.

“We’re basically telling these trade partners ‘we don’t want to do business with you.’ And what incentive would they have to come back to the table after we’ve already negotiated this for the last five years?” he added. “So if it’s not TPP, then what other agreements are readily available?”