statement of roger johnson president national …€¦ · june 14, 2016 washington, dc 2...

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STATEMENTOFROGERJOHNSONPRESIDENT

NATIONALFARMERSUNION

SUBMITTEDTOTHEHOUSECOMMITTEEONWAYSANDMEANSSUBCOMMITTEEONTRADE

REGARDINGEXPANDINGU.S.AGRICULTURETRADEANDELIMINATINGBARRIERSTOU.S.EXPORTS

JUNE14,2016WASHINGTON,DC

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Introduction

Onbehalfofthefamilyfarmer,rancher,andruralmembersofNationalFarmersUnion(NFU),thankyouforholdingthishearingexaminingtheexpansionofU.S.agriculturaltradeandeliminatingbarrierstoU.S.exports.

NFUwasorganizedin1902withthemissionofimprovingthewell-beingandeconomicopportunityforfamilyfarmers,ranchers,andruralcommunitiesthroughgrassroots-drivenadvocacy.Asageneralfarmorganization,NFUrepresentsagriculturalproducersacrossthecountryandinallsegmentsoffamilyagriculture.

NFU,asdirectedbyitspolicyadoptedbydelegatesatitsannualconvention,advocatesforfairtrade.NFUrecognizesthatinternationaltradeisanimportantpartofsuccessfulfamilyfarmingintheU.S.,butincreasingtradeisnotanenduntoitself.NFUpolicystates,“Everyfuturetradeagreementmustaddressdifferencesinlaborstandards,environmentalstandards,healthstandards,andthetrade-distortingeffectofcurrencymanipulationandcartelizationofagriculturemarkets.”1

WhileNFUwasnotinvitedtoparticipateintoday’shearing,weencouragetheSubcommitteetoconsidertheopinionsexpressedbyourmembershiponboththeexperiencedandpotentialimpactsoftradeagreementsonU.S.agriculture.NFUencouragesthecommitteetoseekdiverseopinionsasitevaluatestrademovingforward.

Balancingtrade

TheU.S.tradedeficittotaledover$531billionin2015.2ItrepresentsroughlythreepercentoftheU.S.GrossDomesticProduct(GDP).Thetradedeficitcausesasignificantdragonthegrowthoftheentireeconomy.Formorethan40years,theU.S.hashadatradedeficitthat,onaverage,continuestogrow(Figure1).WithastrengtheningU.S.dollar,thedeficitislikelytogrowin2016,asastrongU.S.dollarwillencourageimportsandreduceexports.ThemassiveoveralltradedeficitexistsdespitetheU.S.havingfreetradeagreementswith20countries,includinghalfofthecountriesintheTrans-PacificPartnership(TPP).BecauseofthesignificantimpactthetradedeficithasontheU.S.economy,alltradeagreements,suchasTPP,musthavetheexplicitobjectiveofbalancingtrade.

1Nat’lFarmersUnion,2015PolicyoftheNationalFarmersUnion(2015)availableathttp://www.nfu.org/nfu-2015-policy/2066.2"ForeignTrade."U.S.InternationalTradeinGoodsandServices(FT900).U.S.CensusBureau.Web.12Jan.2016.

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Figure1

Foryears,tradeagreementshavereceivedpraisefortheirabilitytoopenmarketstoU.S.agriculturalexports.Relativetotheentireeconomy,agriculturehasfaredrelativelywellintrade.Agriculture,however,isanexceptionamongothersectorsoftheeconomy.Since1960,U.S.agriculturalexportshavebeenlargerthanagriculturalimports,creatingasurplusinagriculturaltrade.3Thissurplusisimportantfortheoveralleconomybecauseithelpsoffsetthemassiveoveralltradedeficit.Butitisinsignificantrelativetoothersegmentsoftheeconomy(Figure2).4Inaddition,theagriculturesurplushasrecentlydecreased.5Figure3graphsallU.S.domesticagriculturalexportstotheworldandallU.S.importsforconsumptionfromtheworld.6Whileexportshaveslopedupwardsforyears,importshaveincreasedatagreaterrate.Figure4depictsthisbalanceofagriculturaltradebyvalue.7

Anotherwayofmeasuringtheimpactsoftradeagreementsisexaminingthedomesticexportsasapercentofimportsforconsumption(SeeFigure5:whereanynumberlessthan100percentindicatesanegativetradebalance).Overtime,ifthepercentagedecreases,itindicatesthatthetradingpartners’exportsintotheU.S.areincreasingatafasterratethantheU.S.exportstootherparties.WhiletheU.S.

3"U.S.AgriculturalTrade."USDAEconomicResearchService.28Sept.2015.Web.13Jan.2016.4"U.S.AgriculturalTrade."USDAEconomicResearchService.28Sept.2015.Web.13Jan.2016.5"OutlookforU.S.AgriculturalTrade."USDAEconomicResearchService.1Dec.2015.Web.13Jan.2016.6Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.7Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.

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tradebalanceforallagriculture(includingmanufacturedfoodandkindredproducts,beveragesandtobaccoproducts)ispositive,ithasdecreasedfrom144.9%in1997to116.5%in2014(Figure5).8

Figure2

8Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.

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200,000

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800,000

1,000,000

1,200,000

1,400,000

1,600,000

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Milliondo

llars

ValueofU.S.Trade-AgriculturalandTotalExports(1998-2014)

Source:USDAEconomicResearchService

AgricultureExports TotalExports

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Figure3

Figure4

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Figure5

Forexample,agriculturetradewithKoreahasbeenpositiveandisgrowingonaverage.Unfortunately,relativetotheoveralleconomictradewithKorea,agriculturerepresentsasmallportionoftradeandthedeficitwithKoreacontinuestogrow.TheU.S.enteredintoafreetradeagreementwithKoreaandsinceimplementationin2011,theoveralltradedeficithasgrown(Figure6).9Figures13,14and15depictingtheagriculturaltradedata,whichoffsetssomeoftheoveralltradedeficitforKorea,areincludedonpages13and14.

9"Data&Analysis."InternationalTradeAdministrationData&Analysis.DepartmentofCommerce.Web.13Jan.2016.

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Figure6

RelativetoTPP,theU.S.InternationalTradeCommission(USITC)estimatestheimpactonU.S.GDPwouldbegrowthofGDPby.15%by2032.SomeestimatespredictnegativegrowtheffectsintheU.S.asaresultofTPP.10ApossibilityofnegativeGDPgrowthraisesthequestionofwhytheU.S.wouldpursuethisagreementatall.Evenagrowthrateof0.15%isunacceptablewhenthetradedeficitcurrentlysitsatthreepercentofGDPandislikelytogrowwithimplementationofTPP.

Currencymanipulation

Oneofthemajorcontributingfactorstothemassivetradedeficitiscurrencymanipulation.CurrencymanipulationoccurswhenothercountriesdeliberatelylowerthevalueoftheircurrenciesrelativetotheU.S.dollartogainanunfairadvantage.Thiseffectivelyactsasasubsidyonthatcountry’sexportsandataxonU.S.exportstothatcountry.CurrencymanipulationremainsatopconcernofNFU,particularlyinthecontextofTPP.MembersoftheTPPnegotiationsarewellknowncurrencymanipulators,includingMalaysia,Singapore,andJapan.11Lastsummer,asadirectresultofChina’sdevaluationofcurrency,

10Capaldo,Jeronim,andAlexIzurieta.TradingDown:Unemployment,Inequality,andOtherRisksoftheTrans-PacificPartnershipAgreement.GlobalDevelopmentandEnvironmentInstitute,TuftsUniversity,18Nov.2015.Web.8Jan.201611EconomicPolicyInstitute.CurrencyManipulationandthe896,600U.S.JobsLostDuetotheU.S.-JapanTradeDeficit(2015)availableathttp://www.epi.org/publication/currency-manipulation-and-the-896600-u-s-jobs-lost-due-to-the-u-s-japan-trade-deficit/

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Vietnam(theTPPnationpoisedtogainthemostfromtheTPPagreement12)devaluedthedongby1.2percent.13

Japan,thesecondlargestTPPeconomy,isanidentifiedcurrencymanipulator.InareportbytheEconomicPolicyInstitute(EPI)evaluatingtheimpactoftradewithJapan,EPIfoundthat896,600U.S.jobshavebeenlostduetotheU.S.–Japantradedeficit.14CurrencymanipulationisthesinglemostsignificantcauseofthetradedeficitwithJapan,whichtotaled$68.9billionin2015forgoods.15

TheissueofcurrencymanipulationisnotexclusivetocountrieswithwhichtheU.S.doesnothavetradeagreements.Infact,thelatestfreetradeagreementtheU.S.enteredintowithSouthKoreasuffersthesameissueswithcurrencymanipulationasJapan.Lastyear,theU.S.TreasuryDepartmentissueditssemiannualreportoninternationaleconomicandexchangeratepolicies.Initsreport,itsharshestcriticismofcurrencymanipulationwasreservedforSouthKorea.Thereportstated,“Koreanauthoritiesappeartointerveneonbothsidesofthemarketbut,onnet,theyhaveintervenedmoreaggressivelytoresistwonappreciation.”16TheU.S.enteredintoafreetradeagreementwithKoreainMarchof2012.

InitsfirstreportsincethepassageoftheTradeFacilitationandTradeEnforcementActof2015,theU.S.Treasurycreateda“MonitoringList”thatincludesChina,Japan,Korea,Taiwan,andGermany.Thesecountriesfulfill2outofthe3criteriafortheU.S.toidentifythemascurrencymanipulators.17

TheU.S.-KoreaFreeTradeAgreement(KORUS)usedessentiallythesamearchitectureasprevioustradeagreementsandfailedtoincludeprovisionstoaddresscurrencymanipulation.SouthKoreahasbeen,andcontinuestobe,oneoftheworld’smajorcurrencymanipulators.

TheU.S.didnotsecureenforceablemechanismsagainstcurrencymanipulationintheTPP.TheJointDeclarationoftheMacroeconomicPolicyAuthoritiesofTrans-PacificPartnershipCountries(theTPPsideagreementoncurrency)containsnodisputesettlementmechanismsandprovidesnonewconsequencesordisincentivestocountriesrelativetocurrencymanipulation.Japan’sFinanceMinisterhasevenstatedthattheTPPdealwon’thavebindingpoweronJapan’scurrencypolicy.18

Currencymanipulationhasthecapacitytoeliminateanygainsintariffreductionsthataremadeinfreetradeagreements.Withoutmeasurestoenforcerestrictionsoncurrencymanipulation,freetradeagreementswillcontinuetofailtoliveuptothepromisesmadebytheirsupporters.

TradeandAgricultureHistory

12Boudreau,J.(2015,October18).TheBiggestWinnerFromTPPTradeDealMayBeVietnam.RetrievedJanuary11,2016,fromhttp://www.bloomberg.com/news/articles/2015-10-08/more-shoes-and-shrimp-less-china-reliance-for-vietnam-in-tpp13Uyen,N.(2015,August18).VietnamDevaluesDongforThirdTimein2015onYuanFallout.RetrievedJanuary11,2016,fromhttp://www.bloomberg.com/news/articles/2015-08-19/vietnam-s-central-bank-devalues-dong-for-third-time-this-year14EconomicPolicyInstitute.15EconomicPolicyInstitute.16U.S.DepartmentoftheTreasury,ReporttoCongressonInternationalEconomicandExchangeRatePolicies(2015)availableathttp://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/2014-4-15_FX%20REPORT%20FINAL.pdf17U.S.DepartmentofTreasury,OfficeofInternationalAffairs.(2016,April29).ForeignExchangePoliciesofMajorTradingPartnersoftheUnitedStates.RetrievedJune14,2016,fromhttps://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/2016-4-29(FXPolofMajorTradePartner)_final.pdf18Kajimoto,Tetsushi."FinanceMinisterAso:TPPDealWon'tHaveBindingPoweronJapan'sForexPolicy."Reuters.ThomsonReuters,05Nov.2015.Web.08Jan.2016.

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1. TheNorthAmericanFreeTradeAgreement(NAFTA)

LikeTPP,theNorthAmericanFreeTradeAgreement(NAFTA)camewithpromisesofgreatagriculturalexportopportunitiesforU.S.farmers.Ithasremainedthecase;however,thattheU.S.importsmoreagriculturalgoodsfromCanadathanitexportstoCanada(Figure7).19ThebalanceofagriculturaltradewithCanadahasremainednegativefrom1997to2014(Figure8).20ThecumulativetradedeficitfortradewithCanadaforallofagriculture,includingmanufacturedfoodandkindredproductsandbeveragesandtobaccoproducts,between1997and2014was$46.4billion.21Whenexpressedasapercentageofexportstoimports,withtheexceptionoftheGreatRecession,thepercentagehashoveredaround80%(Figure9).22

Figure7

19Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.20Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.21Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.22Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.

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Figure8

Figure9

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Inthepost-NAFTAperiodof1997to2014,U.S.agricultureexportstoMexicohavegrown,albeitsomewhaterratically(Figure10).23U.S.agricultureimportsfromMexicohavealsogrownatasteadyandincreasingpace.In2013,theU.S.importedmoreagriculturalgoodsfromMexicothanweexportedtoMexico.Agricultureexportsasapercentofimportshavewaveredaround100percentsince1997withtheexceptionofthemostrecentyearswhenthepercentagehasdroppedbelow100(Figure11).24TheU.S.balanceoftradebyvaluewithMexicofluctuatesbetweennearzeroand$1billionforthenon-GreatRecessionyears(Figure12).

Figure10

23Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.24Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.

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Figure11

Figure12

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TheagriculturetradedatafromCanadaandMexicoafterNAFTAimplementationdepictsnomajorboontoU.S.agricultureaswaspromised.TheagriculturaltradesurpluswouldneedtobemuchgreatertooffsettheoverallgoodstradedeficitwithMexico.

2. TheKoreaFreeTradeAgreement(KORUS)

WhiletheU.S.tradedeficitwithKoreahascontinuedtogrowafterimplementationofKORUS,agriculturalexportshavetrendedupwardstoKorea(Figure13).25TheU.S.agriculturetradebalancewithKoreahasremainedpositivesince1997andcontinuestogrow(Figure14).26U.S.exportsasapercentofimportsofagriculturalgoodshavedecreasedfromnearly1800percenttoroughly1075percent(Figure15).27Thepercentageisstillveryhigh,andgoodfortheagriculturesector,butadecreaseofmorethan700percentover17yearsdepictsadeclineofrelativeagriculturaltradetoKorea.

Figure13

25Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.26Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.27Schaffer,Harwood."UnpublishedAnalysisofUSITCData."AgriculturalPolicyAnalysisCenter,2016.

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Figure14

Figure15

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Conclusion

NFU’spolicybookstates,“ThemeasureofthesuccessofatradeagreementhastobeitsbenefittoU.S.agricultureandspecificallyofitsproducers’netincome.Vaguepromisesofmarketaccessdonotoffsetopeningourborderforevenlargeramountsofforeign-producedgoodstoenterourmarkets.Marketaccessdoesnotequalmarketshare.”

OfthetopsevenpurchasersofU.S.agriculturalexports,threealreadyhaveafreetradeagreementwiththeU.S.(Canada,Mexico,andSouthKorea)andthreearenotinvolvedintheTrans-PacificPartnership(China,HongKong,Taiwan).TheremainingcountryisJapanwhichisexpectedtoexperienceonly2.7%ofextraeconomicgrowthforallsectorsby2030asaresultofTPP,accordingtotheWorldBank.28TheTPP-relatedtariffreductionsandadditionalmarketaccessthatJapanhasgiventotheU.S.isapositivestepforU.S.agriculturalexporters,butmustbemeasuredinthecontextoftheentiremultilateralagreement.U.S.agriculturalexporterswillhavetocompeteintheJapanesemarketagainstagriculturalgoodsfromtheotherTPPcountriesincludingmajoragriculturalexporterslikeCanada,Australia,NewZealand,andincreasinglyMexico,whilesimultaneouslygivinggreatermarketaccesstoalloftheTPPpartnercountries.

TheU.S.DepartmentofAgriculture(USDA)states,“Newtradeagreementscreateopportunitiestoincreaseinternationalsalesbystrippingawaytradebarriers,eliminatingtariffs,openingmarkets,andpromotinginvestmentandeconomicgrowth.”29Whilecertainlyeliminatingtariffsandopeningmarketsispositiveforagriculturalexports,itisalsoimportanttoexaminetheoverallimpactsonfamilyfarmers.Whilemodestincreasesinagricultureexportopportunitiesmayoccurwithtradeagreements,theycanbeseverelyovershadowedbytheresultingmassiveincreasesofimportsinagricultureandinothersectors.

TPPcontainsnoenforceablemeasurestoaddressthepersistentlyincreasingU.S.tradedeficitorcurrencymanipulationandwilllikelyleadtothesamenegativeoveralloutcomesofprevioustradeagreements.Itsimpactonagricultureandruralcommunitieswillperpetuatethesametrendsthathavecharacterizedthepast20yearsoffreetradeagreements:greaterconsolidation;erosionofmid-sizedfarms;increasedvolatilityinfarmincomes;anddepopulationofruralAmerica.

TheU.S.canwritetherulesfortrade.Wecandobetter.WemustdobetterbecausethesedeeptradedeficitsarecripplingAmerica.Thankyoufortheopportunitytotestify.

28WorldBank."PotentialMacroeconomicImplicationsoftheTrans-PacificPartnership."GlobalEconomicProspects.WorldBank,2016.Web.13Jan.2016.29"U.S.AgricultureBenefitsfromTradeAgreements."ForeignAgricultureService(n.d.):n.pag.U.S.DepartmentofAgriculture,Apr.2015.Web.8Jan.2016.