Food Dive | 31 August 2015
How international trade agreements factor into the food industry
TPP, TTIP, organic equivalencies — trade agreements have been all over the headlines for the past few months. But what is the impact for food and beverage companies in the U.S.?
Historically, international trade agreements were meant to open up markets and mainly involved removing two primary barriers to trade: high import tariffs and quotas. After the North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO) went into effect in 1994 and 1995, respectively, that began to change.
"NAFTA and WTO ushered in a new regime of trade agreements that dealt with not only the flow of goods across borders but also a host of regulatory issues that have an impact on trade, including intellectual property, food safety, and labeling and standard requirements," said Patrick Woodall, research director and trade policy expert at Food & Water Watch. "We entered into a realm where trade disputes could actually address domestic standards, regulatory regimes, and other measures, which another country could view as an illegitimate trade barrier."
Country-of-origin labeling (COOL) of meat is one example, as it has been challenged by Canada and Mexico as an illegitimate trade barrier. Earlier this year, the WTO ruled in their favor again after denying a fourth U.S. appeal to keep the labeling requirements in place. Canada has since threatened high tariffs.
Trans-Pacific Partnership (TPP)
It seems that Congress passing the Trade Promotion Authority (TPA) bill in June to fast-track TPP wasn’t necessary just yet. The 12-nation TPP talks in Hawaii came to an end last month with no resolution, due mainly to a few sticking points, one of which was dairy. While dairy is a small part of the total economic output for these 12 countries, "the industry’s farmers have outsize political influence in the developed countries wrangling over the issue," according to The Wall Street Journal.
Canada keeps its dairy industry closely guarded, and several countries, including the U.S., New Zealand, Australia, and Japan were vocal about their intent to use the agreement to open up Canada to dairy imports. Canada wants to keep its restrictive tariffs in place to maintain its supply management program and protect domestic dairy farmers, but New Zealand refuses to sign an agreement wherein the country cannot ship more dairy products, its biggest import.
Resolutions for other issues, such as environmental standards in Vietnam and Malaysia and intellectual property rules for geographically linked food names, were successful, and some negotiators did say the talks made "significant progress," The Wall Street Journal reported.
It’s unclear if or when a future meeting would be called to reopen TPP discussions, which is especially worrisome for the U.S. as the 2016 election draws near.
"The sad thing is, it’s 98% concluded," Australia’s trade minister, Andrew Robb, told The Wall Street Journal.
Transatlantic Trade and Investment Partnership (TTIP)
If passed, TTIP has the potential to be the world’s biggest trade pact, comprising one-third of global trade and delivering $100 billion of economic gains on both sides, according to Reuters. Last week, the European Commission responded to criticism of the secrecy surrounding TTIP by agreeing to publish intricate reports on its negotiations with the U.S.
Two major disputes here concern the recognition of geographical indications and food safety. The EU has strong regulations for regional specialities, such as for Champagne and Parma ham, but the U.S. does not have the same regional specialities protection, where that is connected by statue to trademark law.
"TTIP could provide the chance to tackle the US manufacturers who make products for the US market under names that enjoy regional speciality protection in Europe," James Tumbridge, partner of intellectual property and litigation of Pillsbury Winthrop Shaw Pittman, wrote in FoodBev.
The EU and U.S. have hosted 10 rounds of TTIP talks and will likely hold more later in 2015. The nations anticipate finalizing a deal in 2016.
Organic trade equivalencies
The U.S. has signed several organic trade equivalencies over the past few years, most recently including Switzerland earlier this year. The U.S. also signed an organic equivalency agreement with South Koreain 2014, Japan in 2013, the EU in 2012, and Canada in 2009.
Organic equivalency agreements enable other countries to label their organic imports as organic without having to go through USDA certification. This is because the agreement recognizes the standards and certification process in that country to be similar enough to that of the U.S. to bear an organic label in U.S. stores., according to Woodall.
These organic equivalency agreements affect U.S. domestic organic producers by opening up a new market for their products. They also affect companies that source organic ingredients from other countries. For example, if there was no organic equivalency, this could mean a domestic producer could not label its product as organic because of one ingredient from a country without an equivalency agreement with the U.S.
Another potential place of interest for a U.S. organic equivalency agreement is Mexico, which is in the process of developing a rigorous control system for accreditation of certifiers, enforcement, and other aspects of standard credibility and maintaining the integrity of organic food around the world, according to Bob Anderson, senior trade advisor for the Organic Trade Association (OTA). Anderson said that the U.S. government and OTA are in direct conversation with Mexico and are helping the country establish and monitor the development of this organic control system.
Effects of international trade agreements
Trade agreements could weaken food safety laws in some countries. This is Europe’s fear for TTIP, and it’s the U.S.’s fear for TPP. In both cases, one side has more stringent food safety regulations than the other, and that may have to be compromised in some way for the deal to pass. EU regulators claim this would not happen with TTIP.
These agreements can impact domestic producers in terms of both jobs and prices, particularly when the agreement is with a country with a large agricultural system that relies on weak environmental protections and low labor costs. This can bring in a flood of low-priced produce, meat, seafood, and other products from other countries that could be less safe and of lower quality than U.S. products but are bought anyway because they are the cheaper option, said Woodall.
A U.S. company could even shut down its plant in the U.S. and move it to another country to take advantage of cheaper produce and labor there. Woodall said this was what happened when NAFTA was being debated and passed. General Mills’ Green Giant closed its Watsonville, CA, plant before NAFTA passed and transferred that production to northern Mexico, which impacted both manufacturing and farming jobs in the Central Valley of California.
According to Woodall, companies may source a particular product from another country that the U.S. now has a free trade agreement with because the product is cheaper there, even though sometimes the lower price means poor quality and safety standards. To compete, other companies, including U.S. producers, may lower their prices as well.
However, many major food companies, including Archer Daniels Midland, Cargill, Coca-Cola Co., Kraft, Mondelez International, and Monsanto, and industry organizations, including the American Meat Institute, International Dairy Foods Association, and Distilled Spirits Council of the United States, all members of the U.S. Coalition for TPP, believe otherwise.
According to the coalition, "TPP negotiations offer an important opportunity for American companies and workers to level the playing field and open access to some of the world’s fastest growing markets. ... Once a TPP agreement is successfully negotiated and implemented, it will create new trade and investment opportunities with other partner countries for all sectors of the U.S. economy. A successful TPP agreement will also establish a template for the integration of other Asia-Pacific economies into a high-standard, comprehensive agreement that eliminates trade and investment barriers and improves competitiveness across the region."
In other cases, such as the expansion of organic foods into other countries, a trade agreement could also create jobs in that sector, Anderson said.
A lesser known aspect of trade agreements, Woodall said, is their use as venues with which food producers can challenge regulations they don’t support. For example, some transnational meatpacking companies that worked with both the U.S. and Canadian meatpackers were against COOL. The WTO provided a forum with which they could challenge COOL and use it to lobby Congress to overturn the statutes, said Woodall.