A number of recent proposals from the U.S. White House and Congress may affect global produce trade:
- The Trans-Pacific Partnership
- The North American Free Trade Agreement
- Bilateral trade with Mexico. Additionally, congressional leaders have a proposal to establish a border adjustment tax for severalmonths.
The Trans-Pacific Partnership (TPP) is a multi-lateral trade agreement among 12 nations (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam). Formal negotiations concluded in early 2016, but the Obama Administration never presented the final trade deal to Congress for ratification.
What we know:
- Among the first executive orders, President Trump signed after taking office was a directive to the U.S. Trade Representative to give formal notice of the United States’ withdrawal from the agreement.
- Only one country, Japan, has ratified the agreement.
- The agreement requires at least six countries, comprising 85 percent of the GDP of the countries that are parties to the agreement, to ratify it before it takes effect. Without the United States, which comprises more than 50 percent of total GDP of the TPP countries, the agreement as negotiated cannot proceed.
- President Trump has stated his intent to engage in bilateral negotiations to ensure continued opportunities for U.S. exports.
North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA) is a trilateral trade agreement among the United States, Canada and Mexico. Negotiations concluded in 1992 and the agreement came into force in 1994. President Trump stated that if the governments of Canada and Mexico were unwilling to make unspecified changes to NAFTA, he would begin the process of withdrawing the United States from the agreement.
What we know:
20% Border Tariff on Mexican Goods to Pay for a New Border Wall
- Mexico ranks second among U.S. export markets, after Canada, and is the third-leading supplier of U.S. imports. Total trade (exports plus imports) amounted to $531.1 billion in 2015.
- Included in this amount was $5.4 billion in fruit imports to the United States from Mexico and $5.5 billion in vegetable imports to the United States from Mexico, making Mexico the United States’ top foreign supplier for both categories.
- Changes to NAFTA are possible, if agreed to by the U.S., Canada and Mexico.
- The Trade Act of 1974, which also applies to NAFTA, the World Trade Organization and other U.S. trade agreements, grants the U.S. president authority to unilaterally withdraw from trade agreements. In most cases, including NAFTA, this requires six months’ notice to the other parties.
- The Trade Act of 1974 also grants the U.S. president authority to unilaterally impose punitive tariffs. However, these increases are capped at 20-50 percent higher than the rates in effect in January 1974, thus resulting in only modest increases in many cases.
Throughout his campaign for office, President Trump stated that he would require the government of Mexico to pay for the wall along the U.S.-Mexico border, which was one of the key commitments of his campaign. The Mexican government has continually stated that it will not pay for the wall. On January 26, as the debate on the topic continued to escalate, President Trump stated that he would use a 20 percent border tax on goods entering the U.S. from Mexico as a way to pay for the border wall.
What we know:
Congressional Proposal for Border Adjustment Tax
- Current law allows the president to impose tariffs. The justification can be punitive tariffs (as discussed above, capped at 20-50 percent higher than rates in effect in January 1974), or using other legal authorities, to address balance of payment deficits, unfair trade practices or for national security reasons.
- Utilization of any of these authorities would almost certainly bring retaliatory tariffs on goods from the United States entering other countries.
In June, Republicans in the House of Representatives outlined a proposal to overhaul U.S. tax policy. Included in this proposal is a border adjustment tax, levied on all goods entering the United States. Proponents state that goods would be taxed where they are consumed, rather than where they are manufactured. Proponents also state that this “levels the playing field” as it is similar to the value-added taxes used throughout much of the rest of the world.
What we know:
- If implemented, a border adjustment tax would be one of the broadest changes in U.S. tax policy ever.
- Huge sectors of the U.S. economy – retailers, certain manufacturing segments, have lined up in staunch opposition to the proposal.
- While House Republicans have defended the proposals, Senate Republicans have been more subdued in their reaction.
As we move forward in 2017, we will pay close attention to U.S. proposals that may affect global produce trade so the industry may adjust their business practices accordingly.