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RE: Request for Comments on Negotiating Objectives Regarding Modernization of the
North American Free Trade Agreement with Canada and Mexico

Dear Mr. Gresser:

On May 23, 2017, the Office of the United States Trade Representative published in the Federal Register a request for comments on negotiating objectives regarding modernization of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. Since entering into force on January 1, 1994, NAFTA has been an important vehicle for creating integrated supply chains among the three countries that allow the food wholesale and retail industry to provide consumers with safe, healthy and affordable eating options year-round. The Food Marketing Institute (FMI) appreciates the opportunity to submit comments on the modernization of NAFTA and urges American negotiators to maintain and expand the tariff concessions and overall market access that have made NAFTA a highly successful trade agreement and a significant source of growth in the U.S. economy.

The Food Marketing Institute (FMI) proudly advocates on behalf of the food wholesale and retail industry. FMI’s U.S. members operate nearly 40,000 retail food stores and 25,000 pharmacies, representing a combined annual sales volume of almost $770 billion. Through programs in public affairs, food safety, research, education and industry relations, FMI offers resources and provides valuable benefits to more than 1,225 food retail and wholesale member companies in the United States and around the world. FMI membership covers the spectrum of diverse venues where food is sold, including single owner grocery stores, large multi-store supermarket chains and mixed retail stores. For more information, visit www.fmi.org and for information regarding the FMI foundation, visit www.fmifoundation.org.
I. NAFTA’s Role in the Evolution of the Food Wholesale and Retail Industry in the
United States

The food wholesale and retail industry is a significant economic sector that employs more than
4.8 million people in the United States and helps support almost 3 million additional jobs in supplier and upstream industries. These are jobs that cannot be exported. In 2015, the industry contributed more than $81 billion to the U.S. Treasury in federal taxes. The industry makes these contributions to the economy despite having an average profit margin below 2 percent. In fact, in the more than 30 years that FMI has tracked the industry’s net profits after taxes, the margin has never exceeded 1.91 percent in any given year.

Over the past thirty years, supermarkets and grocery stores have evolved in ways that would have been hard to predict in the days before NAFTA. Grocers – even ones far from borders and ports - now offer authentic and affordable food choices from around the world. Produce departments offer year-round access to high quality fruits and vegetables that once would only have been available during the limited growing period of the U.S. harvest. These changes were driven in part by the incredible creativity and productivity of the American farmer, whose efforts have established the United States as a global leader in food production.

NAFTA (and other free trade agreements) also played an important role in this transition. By opening new markets – not only to U.S. exports, but also for imports that can plug the gap in the U.S. growing season – the U.S. has maintained and expanded the safest and most affordable food system in the world. For example, avocados, watermelons, strawberries and limes are all imported seasonally from Mexico during periods when the growing season would largely not allow an exclusively U.S. supply to meet consumer demand.

It is important to note that as trade increased between the three NAFTA countries, supply chains became increasingly integrated and interdependent. Food retail no longer just imports and sells finished goods, but rather we see inputs crossing back and forth across the borders to create new products. Shiner Beer is brewed in Texas but uses bottles from Mexico. Mexican peppers, tomatoes and onions help support food manufacturing jobs in the United States and guarantee that consumers can have access to high-quality salsa year-round. We should never ignore the dislocations that trade agreements can cause, but we also should acknowledge the reality that - by virtually all accounts - NAFTA has been a net job creator, particularly in the food and agriculture sector.

Trade agreements like NAFTA not only create good-paying manufacturing jobs in the United States, they also support the low prices consumers pay for groceries. In 2014, the United States Depart of Agriculture estimated that Americans paid only 9.7 percent of their total disposable income on food; this is down from 20 percent in 1950. This frees up income to be spent in other areas and helps fuel the U.S. economy. These low prices are especially remarkable when you consider the incredible selection of products available at your neighborhood grocery store. Consumers are paying less for a wider variety of food products; this is made possible by open markets and integrated supply chains that maximize efficiency and selection. NAFTA has been a prime driver of this process.

II. FMI Recommendations for Negotiating Objectives in NAFTA Modernization Talks

Despite the incredible success of NAFTA, it is 23 years old and due for an update. FMI is glad to see the administration moving in this direction and would offer the following principles for negotiating objectives when talks begin. Please note that these comments are specifically directed at the food and agriculture portions of the agreement and should not be construed as recommendation for other areas, unless specifically noted.

Maintain and Build on the Successes of the Agreement

As outlined above, NAFTA has been an extraordinarily successful agreement that has helped fuel lower prices and increased selection for American consumers. These gains must be maintained in any new round of talks, and we would encourage negotiators to first and foremost adopt a ‘do no harm’ approach to moving forward.

Keep NAFTA a three-party agreement – The trilateral nature of NAFTA is one of its core strengths and has helped to create a very powerful North American trading bloc. While there are certain issues that are inherently bilateral in nature (e.g. the U.S.- Mexico dispute over sugar), we urge USTR to maintain the agreement as a trilateral one and resist any calls to break it into two bilateral deals.

Maintain Current Market Access and Tariff Levels - Since 2008, trade in food and agricultural products has been largely free of tariffs and quota restrictions. This status must be maintained and the supply chains that have been created - in part because of these commitments - respected.

Country of Origin Labeling for Beef and Pork Should Not Be an Agenda Item – Country of origin labeling (COOL) for beef and pork was the subject of a longstanding dispute between the United States, Canada and Mexico. The issue was fully adjudicated in the World Trade Organization (WTO), with the end result of Congress deciding to repeal this portion of the COOL law. Some interest groups have called for COOL for pork and beef to be included as part of any new negotiations. Congress’ actions should be respected; COOL should not be revisited as part of NAFTA talks.

Modernize NAFTA By Addressing Issues That Have Developed in the Twenty-Three Years
Since It Came Into Force

Intellectual Property Protections Should Be Brought on Par With Other US Trade Agreements – While NAFTA took critical first steps in protecting US intellectual properties and protecting the United States’ role as the world’s leader in innovation, US negotiators have since been able to secure more robust IP regimes in follow-on FTAs. The negotiation should seek to upgrade these protections to reflect levels in other FTAs and promote changes in Canadian and Mexican IP laws that will keep the playing field level.

Address E-Commerce and Other Aspects of the Digital Economy – The internet was in its infancy when NAFTA came into force, and thus much of the agreement remains silent on the issues that impact this important economic sector and cross-border trade. The agreement should be modernized to reflect global best practices in the transfer of data, consumer protection (including personal data), encryption, and breach protections. A ‘new” NAFTA should also recognize the validity of electronic signatures and other electronic certifications across borders.

The Safety of GMOs and Biotech Products Should Be Explicitly Recognized in the Modernized Agreement - FMI encourages negotiators to explicitly recognize the safety of biotech products intended for food and/or feed in all three countries. To the extent that is practical, efforts should be made to harmonize approaches to biotech products and to prevent trade disputes over these goods that may impact supply chains.

Ensure NAFTA’s Longevity By Creating Certainty and Harmonization

Sanitary and Phytosanitary Measures Need to Be Transparent and Science-Based – SPS provisions should not be used as a barrier to trade. WTO protocols provide a base level of protection against this, but NAFTA needs to be updated to help protect U.S. agriculture products. These measures need to be transparent, non-discriminatory and based on sound-science. In addition, negotiators should explore updating enforcement mechanisms that allow all parties to address these barriers in a timely fashion.

Work to Ensure Consistent Food and Product Labeling Standards – The regulatory regimes that govern food labeling vary for each of the three countries, which can lead to additional costs and complexity being injected into the system. To the extent practical, negotiators should seek to harmonize these labeling standards and promote recognition across the three NAFTA countries.

Promote Customs Modernization and Improve Infrastructure at the Border – The current chapter on Customs Procedures has greatly improved the transparency of administrative procedures required for importing/exporting and reduced delays at the border. These efforts should be updated to simplify recordkeeping and auditing procedures; the development of a single NAFTA Customs document should also be explored. FMI also encourages all parties to consider sharing and integrating border facilities to help create a more efficient flow of goods and reduce the costs of administration.

III. Conclusion

A stronger NAFTA will benefit all of the parties, but especially the United States. Millions of good-paying jobs are already directly supported by the agreement, and a modernized approach that reflects the changes to the US economy that have taken place over the last 23 years will help to create many more of these opportunities. FMI commends the administration for undertaking these new negotiations and fully supports efforts to help make one of the United States’ most successful trade agreements even stronger.

Thank you for the opportunity to comment on potential negotiating objectives for the modernization of NAFTA.

Andrew S. Harig
Senior Director – Sustainability, Tax & Trade
Food Marketing Institute