Obama Urged To Clarify NAFTA Intentions

by Mike Godfrey, Tax-News.com, Washington

09 March 2009

Echoing concerns held by many businesses trading across America's borders, a senior Republican Senator has urged President Obama to clarify his intentions regarding the North American Free Trade Agreement between Canada, Mexico and the United States.

The Obama administration announced in its much-anticipated trade policy document, released on March 3, that it wants to review NAFTA to identify ways in which the agreement could be improved "without having an adverse effect on trade." But Sen. Chuck Grassley, the ranking member on the Senate Finance Committee and a pro free trade advocate, has warned that meddling with the text of the agreement could be a dangerous path to take, especially at such an economically sensitive time.

“NAFTA leveled the playing field on Mexican tariffs on US products,” Grassley said. “I don’t want that progress unwound to the detriment of US farmers and manufacturers. They need strong export markets for jobs and growth.”

Obama's inconsistencies on trade were highlighted by Grassley in a letter to the President in which he observed how as a presidential candidate, the then Senator for Illinois described NAFTA as “devastating” and a “big mistake.” Obama was also said to have suggested that the "hammer of a potential opt-out" should be used to pressure Mexico and Canada to make changes to the trade agreement. The administration's policy document assures that the review of NAFTA will be undertaken in a "collaborative spirit" that seeks to benefit all three signatories, but Grassley points out that the inconsistencies are only serving to increase uncertainty for producers.

"I question how this agreement could be changed without having an adverse effect on trade," Grassley wrote. "For example, I am concerned that if the trade agreement is reopened, Mexico will seek to rebalance tariff concessions in a way that will adversely affect agricultural exports."

"More broadly, I am concerned that the signals you are sending with respect to the North American Free Trade Agreement are creating uncertainty in the marketplace. We can ill-afford such uncertainty as we work to recover from our national economic downturn," the letter warns.

NAFTA was first implemented in 1994, but final duties on a handful of agricultural commodities were not removed until January 1, 2008. These commodities included US exports to Mexico of corn, dry edible beans, and nonfat dry milk, Mexican exports to the United States of certain horticultural products, and two-way sweetener trade.

Canada and Mexico are the first- and second-largest export markets for US agriculture, respectively. In fiscal year 2007, two-way agricultural trade between the United States and Mexico was valued at a record USD22.2bn, a nearly fourfold increase over fiscal 1993 — the year preceding the implementation of NAFTA — when two-way trade was valued at USD6.4bn, according to the US Department of Agriculture. Total trade among the NAFTA nations more than tripled, from USD297bn to USD930bn from 1993 to 2007.

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