Full Implementation of NAFTA

1. Full Implementation of NAFTA Presentation to the Marketing & International Trade Policy Committee NASDA February 10, 2008 Constance Jackson Associate Administrator Foreign Agricultural Service U.S. Department of Agriculture Good morning everyone and thank you for inviting me to be part of your agricultural international trade meetings. NASDA does an outstanding job of supporting efforts to expand economic opportunities for our farmers and ranchers, and we appreciate all of your efforts. Good morning everyone and thank you for inviting me to be part of your agricultural international trade meetings. NASDA does an outstanding job of supporting efforts to expand economic opportunities for our farmers and ranchers, and we appreciate all of your efforts.

2. Importance of Trade for U.S. Agriculture U.S. agricultural exports are at record-levels Exports account for 20-25% of total agricultural cash receipts One in three U.S. acres of land planted is for exports U.S agricultural production grows 2% a year, but U.S. population growth is 1% a year If agriculture is going to be a growth industry, we have to compete. The commodities that are experiencing the greatest growth in demand are those that we export. Approximately 95% of the world’s population lives outside the borders of the United States.If agriculture is going to be a growth industry, we have to compete. The commodities that are experiencing the greatest growth in demand are those that we export. Approximately 95% of the world’s population lives outside the borders of the United States.

3. Many Products Depend onOverseas Markets Exports contribute substantially to farm cash receipts for many commodities. Just look at these figures: 80 percent of our almonds are exported. 70 percent of U.S. cotton and cattle hides are exported. Half of our wheat and rice are exported, and a third of our soybeans. The export share for many fruits range from 20-40 percent. Exports contribute substantially to farm cash receipts for many commodities. Just look at these figures: 80 percent of our almonds are exported. 70 percent of U.S. cotton and cattle hides are exported. Half of our wheat and rice are exported, and a third of our soybeans. The export share for many fruits range from 20-40 percent.

4. Agricultural Trade Benefits the Entire U.S. Economy Each dollar of agricultural exports stimulates another $1.65 in business activity In 2006, the $71 billion in agricultural exports produced additional $117.2 billion in economic activity, totalling $188.2 billion These exports generated 841,000 jobs which include 482,000 jobs in the nonfarm sector The figures in this slide are 2006 numbers, the latest year for which we have complete statistics. U.S. agricultural exports generate employment, income, and purchasing power in both farm and non-farm communities. For example, a farmer’s purchase of fuel, fertilizer, and other inputs to produce commodities for export spurs economic activity in the manufacturing, trade, and transportation sectors. The figures in this slide are 2006 numbers, the latest year for which we have complete statistics. U.S. agricultural exports generate employment, income, and purchasing power in both farm and non-farm communities. For example, a farmer’s purchase of fuel, fertilizer, and other inputs to produce commodities for export spurs economic activity in the manufacturing, trade, and transportation sectors.

5. U.S. Agricultural TradeExports To Set Fifth Consecutive Record U.S. agricultural exports for FY 2007 reached a record $81.9 billion, an astounding $13.4 billion increase over the previous year’s record. That’s four straight years of export records. And for FY 2008, we are forecasting U.S. agricultural exports will reach $91 billion. (A new forecast is coming out Feb. 21 at the Ag Outlook Conference) Bulk commodity export volume is up too, particularly for wheat and corn due to due to tighter stocks in major exporting countries, in part reflecting poor weather in Australia, the EU, Ukraine, and Canada. What we are seeing is evidence that U.S. agricultural products are in demand and we are delivering. And given a level playing field we can deliver even more. NAFTA has played a significant role in this export growth. U.S. agricultural exports for FY 2007 reached a record $81.9 billion, an astounding $13.4 billion increase over the previous year’s record. That’s four straight years of export records. And for FY 2008, we are forecasting U.S. agricultural exports will reach $91 billion. (A new forecast is coming out Feb. 21 at the Ag Outlook Conference) Bulk commodity export volume is up too, particularly for wheat and corn due to due to tighter stocks in major exporting countries, in part reflecting poor weather in Australia, the EU, Ukraine, and Canada. What we are seeing is evidence that U.S. agricultural products are in demand and we are delivering. And given a level playing field we can deliver even more. NAFTA has played a significant role in this export growth.

6. NAFTA Accounts for Much of the Growth in U.S. Exports over the Past Decade Canada and Mexico are the No. 1 and No. 2 export markets for U.S. agriculture, respectively. In fiscal year 2007, two-way agricultural trade between the United States and Mexico was valued at a record $22.2 billion, a nearly fourfold increase over fiscal 1993—the year preceding the implementation of NAFTA—when two-way trade was valued at $6.4 billion. Two-way agricultural trade with Canada has grown from $10.9 billion in 1993 to $27.9 billion in 2007. With full implementation of NAFTA as of January 1, 2008, we expect this agricultural trade will flourish even more. The forecast for FY2008 is $28.4 billion. NAFTA has provided a clear and certain path to liberalized trade. This predictable framework has been essential in attracting the new investment, technology, and talent that is necessary for sustained economic growth in an increasingly global marketplace. Canada and Mexico are the No. 1 and No. 2 export markets for U.S. agriculture, respectively. In fiscal year 2007, two-way agricultural trade between the United States and Mexico was valued at a record $22.2 billion, a nearly fourfold increase over fiscal 1993—the year preceding the implementation of NAFTA—when two-way trade was valued at $6.4 billion. Two-way agricultural trade with Canada has grown from $10.9 billion in 1993 to $27.9 billion in 2007. With full implementation of NAFTA as of January 1, 2008, we expect this agricultural trade will flourish even more. The forecast for FY2008 is $28.4 billion. NAFTA has provided a clear and certain path to liberalized trade. This predictable framework has been essential in attracting the new investment, technology, and talent that is necessary for sustained economic growth in an increasingly global marketplace.

7. U.S. Agricultural Exports to Canada This chart shows the dramatic increase of U.S. exports to Canada since the inception of NAFTA, jumping from $5.3 billion in 1993 to an expected $14.7 in 2008. Canada is our number one export market. This chart shows the dramatic increase of U.S. exports to Canada since the inception of NAFTA, jumping from $5.3 billion in 1993 to an expected $14.7 in 2008. Canada is our number one export market.

8. Examples of U.S. Ag Exports to Canada Canadian agricultural trade continues to grow in importance because of NAFTA and the resulting increased integration of our agricultural markets. The growth in trade between Canada and the United States has benefited both countries by encouraging stronger economic growth through economic specialization, new product development, foreign investment, and increased competition. Consumers have also gained from lower prices and a greater diversity of consumer goods. Canadian agricultural trade continues to grow in importance because of NAFTA and the resulting increased integration of our agricultural markets. The growth in trade between Canada and the United States has benefited both countries by encouraging stronger economic growth through economic specialization, new product development, foreign investment, and increased competition. Consumers have also gained from lower prices and a greater diversity of consumer goods.

9. U.S. Agricultural Imports from Canada U.S. agricultural imports from Canada have grown from $4.6 billion in 1993 to an expected $20.8 billion in 2008 Leading imports include: Wheat Coarse grains Live animals Snack foods Processed fruits and vegetables Canada-U.S. agricultural trade is marked by a substantial amount of intra-industry trade, particularly in value-added products. Within the broad category of grains and feeds, for instance, intra-industry trade encompasses numerous processed foods—including dog or cat food for retail sale; mixes and dough; pastries, cake, bread, and pudding; breakfast cereal; and uncooked pastas. Beef and pork are prominent examples of intra-industry trade outside the grain and feed sector. Trade liberalization has facilitated the expansion of intra-industry trade and has exerted an especially strong influence on bilateral trade in wheat products and beef. Canada-U.S. agricultural trade is marked by a substantial amount of intra-industry trade, particularly in value-added products. Within the broad category of grains and feeds, for instance, intra-industry trade encompasses numerous processed foods—including dog or cat food for retail sale; mixes and dough; pastries, cake, bread, and pudding; breakfast cereal; and uncooked pastas. Beef and pork are prominent examples of intra-industry trade outside the grain and feed sector. Trade liberalization has facilitated the expansion of intra-industry trade and has exerted an especially strong influence on bilateral trade in wheat products and beef.

10. U.S. Agricultural Exports to Mexico Because of NAFTA, our agricultural exports to Mexico have risen from $3.6 billion in 1993 to an expected $13.7 billion in 2008. Mexico is our second largest agricultural export market. Because of NAFTA, our agricultural exports to Mexico have risen from $3.6 billion in 1993 to an expected $13.7 billion in 2008. Mexico is our second largest agricultural export market.

11. Examples of U.S. Ag Exports to Mexico The United States is Mexico's most significant agri-food trading partner, buying roughly 85 percent of Mexican exports and supplying about 65 percent of the country's imports. Grains, oilseeds, meat, and related products make up about three-fourths of U.S. agricultural exports to Mexico. The United States is Mexico's most significant agri-food trading partner, buying roughly 85 percent of Mexican exports and supplying about 65 percent of the country's imports. Grains, oilseeds, meat, and related products make up about three-fourths of U.S. agricultural exports to Mexico.

12. U.S. Agricultural Imports from Mexico U.S. agricultural imports from Mexico have grown from $3.6 billion in 1993 to an expected $13.6 billion in 2008 Leading imports include: Beer Vegetables Fruit The items listed here account for about ¾ of the imports from Mexico. U.S. fruit and vegetable imports from Mexico are closely tied to Mexico’s expertise in producing a wide range of produce, along with its favorable climate and a growing season that largely complements the U.S. growing season. Successful efforts to market specific brands of Mexican beer in the United States have made that product Mexico’s leading agricultural export to the United States. The items listed here account for about ¾ of the imports from Mexico. U.S. fruit and vegetable imports from Mexico are closely tied to Mexico’s expertise in producing a wide range of produce, along with its favorable climate and a growing season that largely complements the U.S. growing season. Successful efforts to market specific brands of Mexican beer in the United States have made that product Mexico’s leading agricultural export to the United States.

13. Impact of NAFTA Model for other free trade agreements CAFTA-DR ($2.6 billion market) Peru ($332 million market) Colombia ($1.1 billion market) Panama ($265 million market) Korea ($3.1 billion market) When talking about NAFTA, however, the significance of the agreement goes far beyond the trade numbers themselves. NAFTA has served as a model and foundation for our ongoing efforts to advance the objective of trade liberalization. In this hemisphere, the positive lessons from NAFTA have helped facilitate the move toward the free flow of agricultural products between an ever expanding number of countries. Our recently concluded Latin American trade agreements with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua (creating the CAFTA-DR) and Peru, coupled with pending Congressional approval of Colombia and Panama, will strengthen democratic institutions, strip away barriers to trade, eliminate tariffs, open markets, and promote investment, economic growth and opportunity. On March 1, 2007, CAFTA-DR formally entered into force with the Dominican Republic, which followed similar actions with El Salvador, Guatemala, Honduras and Nicaragua in FY 2006. In Costa Rica, the agreement was ratified by popular referendum on October 7, 2007. Costa Rica is now addressing a range of implementation-related issues through its legislative process, and it is hoped the agreement can enter into force as early as March 2008. When talking about NAFTA, however, the significance of the agreement goes far beyond the trade numbers themselves. NAFTA has served as a model and foundation for our ongoing efforts to advance the objective of trade liberalization. In this hemisphere, the positive lessons from NAFTA have helped facilitate the move toward the free flow of agricultural products between an ever expanding number of countries. Our recently concluded Latin American trade agreements with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua (creating the CAFTA-DR) and Peru, coupled with pending Congressional approval of Colombia and Panama, will strengthen democratic institutions, strip away barriers to trade, eliminate tariffs, open markets, and promote investment, economic growth and opportunity. On March 1, 2007, CAFTA-DR formally entered into force with the Dominican Republic, which followed similar actions with El Salvador, Guatemala, Honduras and Nicaragua in FY 2006. In Costa Rica, the agreement was ratified by popular referendum on October 7, 2007. Costa Rica is now addressing a range of implementation-related issues through its legislative process, and it is hoped the agreement can enter into force as early as March 2008.

14. Pending Free Trade Agreements Colombia Trade Promotion Agreement Panama Trade Promotion Agreement South Korea Trade Promotion Agreement Peru Trade Promotion Agreement signed Dec. 14, 2007 General, commodity, and state fact sheets available at www.fas.usda.gov We currently have three important free trade agreements that will be put before Congress for action -- Colombia, Panama, and South Korea. We are very pleased with the strong bipartisan vote the Peru Trade Promotion Agreement recently received in Congress. This return to solid bipartisanship in support of free trade is a very positive step. We need Congress to continue the process of eliminating restrictive tariffs on U.S. products by moving forward with the Colombia, and then the Panama and Korea trade agreements. We currently have three important free trade agreements that will be put before Congress for action -- Colombia, Panama, and South Korea. We are very pleased with the strong bipartisan vote the Peru Trade Promotion Agreement recently received in Congress. This return to solid bipartisanship in support of free trade is a very positive step. We need Congress to continue the process of eliminating restrictive tariffs on U.S. products by moving forward with the Colombia, and then the Panama and Korea trade agreements.

15. NAFTA Implementation and Mexico As of Jan. 1, 2008, trade restrictions lifted on: U.S. exports to Mexico – corn, dry edible beans, nonfat dry milk, high fructose corn syrup Mexican exports to U.S. – sugar, horticultural products With the full implementation of NAFTA on January 1, the last remaining trade restrictions on a handful of agricultural commodities such as U.S. exports to Mexico of corn, dry edible beans, nonfat dry milk, and high fructose corn syrup and Mexican exports to the United States of sugar and certain horticultural products are now removed. The United States will continue to work with Mexico to build on the successes achieved to date. Since 2005, the United States has invested nearly $20 million in programs and technical exchanges to assist Mexico in addressing production, distribution and marketing-related challenges associated with the transition to free and open trade. These development activities promote market- and science-based policies and institutions, and sustainable agricultural systems which enables Mexico to be a more robust trading partner. 3-year technical assistance initiatives: Assist small-scale corn and dry bean producers to diversity crops and improve cultivation and Work with the International Maize and Wheat Improvement Center to advance local corn varieties With the full implementation of NAFTA on January 1, the last remaining trade restrictions on a handful of agricultural commodities such as U.S. exports to Mexico of corn, dry edible beans, nonfat dry milk, and high fructose corn syrup and Mexican exports to the United States of sugar and certain horticultural products are now removed. The United States will continue to work with Mexico to build on the successes achieved to date. Since 2005, the United States has invested nearly $20 million in programs and technical exchanges to assist Mexico in addressing production, distribution and marketing-related challenges associated with the transition to free and open trade. These development activities promote market- and science-based policies and institutions, and sustainable agricultural systems which enables Mexico to be a more robust trading partner. 3-year technical assistance initiatives: Assist small-scale corn and dry bean producers to diversity crops and improve cultivation and Work with the International Maize and Wheat Improvement Center to advance local corn varieties

16. Engagement with Mexico toKeep NAFTA on Track Joint Corn and Dry Bean Working Group Sweeteners Working Group Joint Livestock and Animal Products Working Group High-level visits – Johanns visit, March 2007; U.S.-Mexico Consultative Committee on Agriculture (CCA), January 2008 Mexico has faced internal pressures over the past several years to renegotiate certain provisions of the NAFTA, particularly those dealing with the 2008 liberalization of corn and dry bean trade. The United States has consistently and clearly rejected the renegotiation of NAFTA commitments. This is crucial for the continued integrity of NAFTA, and also sends an important signal to all of our other trade partners on the need to fully adhere to negotiated commitments. As I just mentioned, on January 1 of this year, the United States and Mexico removed all remaining duties and quantitative restrictions on bilateral trade in sweeteners. This concluded a 14-year transition to free trade that was negotiated as part of the NAFTA. With the elimination of duties on sweeteners and all other products, the United States and Mexico are, for the first time, able to take advantage of the full potential of the NAFTA to expand trade, enhance the competitiveness of our farmers, processors and manufacturers and provide our consumers with the widest range of reasonably priced, high quality goods. The Administration cannot support the recommendations provided by the sugar industry and will oppose efforts to implement them through legislation. We should not, and in fact cannot, turn the clock back. Mexico has faced internal pressures over the past several years to renegotiate certain provisions of the NAFTA, particularly those dealing with the 2008 liberalization of corn and dry bean trade. The United States has consistently and clearly rejected the renegotiation of NAFTA commitments. This is crucial for the continued integrity of NAFTA, and also sends an important signal to all of our other trade partners on the need to fully adhere to negotiated commitments. As I just mentioned, on January 1 of this year, the United States and Mexico removed all remaining duties and quantitative restrictions on bilateral trade in sweeteners. This concluded a 14-year transition to free trade that was negotiated as part of the NAFTA. With the elimination of duties on sweeteners and all other products, the United States and Mexico are, for the first time, able to take advantage of the full potential of the NAFTA to expand trade, enhance the competitiveness of our farmers, processors and manufacturers and provide our consumers with the widest range of reasonably priced, high quality goods. The Administration cannot support the recommendations provided by the sugar industry and will oppose efforts to implement them through legislation. We should not, and in fact cannot, turn the clock back.

17. Joint Livestock and Animal Products Working Group High priority will be given to SPS issues affecting the flow of livestock and animal products Mexico seeking recognition that certain states in Mexico are free from classical swine fever Engagement with Mexico toKeep NAFTA on Track In addition to trade in sweeteners and products, there has been some sensitivity on trade in livestock and animal products. To address this concern, the United States and Mexico agreed, during our CCA last month, to establish a Livestock and Animal Products Working Group. The Working Group will work to: Exchange information regarding the swine and swine meat markets in the United States and Mexico; and Collectively work towards the alignment of sanitary measures where practical, using all appropriate available bilateral and trilateral (NAFTA) mechanismsIn addition to trade in sweeteners and products, there has been some sensitivity on trade in livestock and animal products. To address this concern, the United States and Mexico agreed, during our CCA last month, to establish a Livestock and Animal Products Working Group. The Working Group will work to: Exchange information regarding the swine and swine meat markets in the United States and Mexico; and Collectively work towards the alignment of sanitary measures where practical, using all appropriate available bilateral and trilateral (NAFTA) mechanisms

18. On the future U.S.-Mexico Consultative Committee on Agriculture (CCA) agenda: Corn and dry beans Sweeteners Two-way livestock and meat trade Range of important SPS issues, including expanding access for U.S. potatoes Antidumping actions against U.S. beef and apples Engagement with Mexico toKeep NAFTA on Track The CCA usually meets twice a year to discuss a range of trade issues impacting U.S. and Mexican producers. USDA Undersecretary Mark Keenum participated in these meetings in Mexico in January of this year. The CCA usually meets twice a year to discuss a range of trade issues impacting U.S. and Mexican producers. USDA Undersecretary Mark Keenum participated in these meetings in Mexico in January of this year.

19. Full Implementation of NAFTA Presentation to the Marketing & International Trade Policy Committee NASDA February 10, 2008 Constance Jackson Associate Administrator Foreign Agricultural Service U.S. Department of Agriculture

20. Farm Bill Needs to protect U.S. farmers from WTO challenges Needs to create a trade environment where science-based standards are the norm Needs to provide tools for export promotion – MAP, FMD, etc. Needs to be without tax increases or budget gimmicks Slide to be used if needed From the Administration’s point of view both the House and the Senate versions of the Farm Bill cost too much and include tax increases. Does not do enough for farmers most in need. Does not go far enough toward imposing a meaningful income cap for participation in farm programs. It makes no sense to put a bull’s eye on the back of the American farmer. It's very important that we do everything we can in the new Farm Bill to craft a farm policy that strengthens U.S. agriculture’s competitive position, making our farm policy less likely to be challenged in the WTO. Slide to be used if needed From the Administration’s point of view both the House and the Senate versions of the Farm Bill cost too much and include tax increases. Does not do enough for farmers most in need. Does not go far enough toward imposing a meaningful income cap for participation in farm programs. It makes no sense to put a bull’s eye on the back of the American farmer. It's very important that we do everything we can in the new Farm Bill to craft a farm policy that strengthens U.S. agriculture’s competitive position, making our farm policy less likely to be challenged in the WTO.

21. Security and Prosperity Partnership Of North America 5 high priority initiatives: The North American Competitiveness Council Advancing Cooperation on Avian and Pandemic Influenza North American Energy Security Initiative North American Emergency Management Smart, Secure Borders Slide to be used if needed Established in 2005. The SPP is meant to: Coordinate our security efforts to better protect U.S. citizens from terrorist threats and transnational crime and promote the safe and efficient movement of legitimate people and goods; Expand economic opportunity for all our people by making our businesses more competitive in the global marketplace, cutting red tape, and providing consumers with safe, less expensive, and innovative products; and Enhance our common efforts to combat infectious diseases, develop responses to man-made or natural disasters to enhance our citizens’ quality of life, protect our people and our environment, and improve consumer safety. Slide to be used if needed Established in 2005. The SPP is meant to: Coordinate our security efforts to better protect U.S. citizens from terrorist threats and transnational crime and promote the safe and efficient movement of legitimate people and goods; Expand economic opportunity for all our people by making our businesses more competitive in the global marketplace, cutting red tape, and providing consumers with safe, less expensive, and innovative products; and Enhance our common efforts to combat infectious diseases, develop responses to man-made or natural disasters to enhance our citizens’ quality of life, protect our people and our environment, and improve consumer safety.

22. FAS FY 2009 Budget FY 2009 Budget Request - $173 million – same request at FY 2008 In FY 2008 received $163 million FY 2009 – All increases go to cover non-discretionary costs Slide to be used if needed FY2008 shortfall hurt FAS overseas operations. In the FY2009 budget, particular emphasis must be placed on maintaining FAS’ overseas posts so that its representation and advocacy activities on behalf of U.S. agriculture can continue. Included in the budget is funding to pay for higher operating costs at overseas offices, including increased payments to the Department of State for non-discretionary administrative services. In addition, recent declines in the value of the dollar combined with overseas inflation and rising wage rates have led to sharply higher operating costs that must be accommodated if FAS is to maintain an effective overseas presence.Slide to be used if needed FY2008 shortfall hurt FAS overseas operations. In the FY2009 budget, particular emphasis must be placed on maintaining FAS’ overseas posts so that its representation and advocacy activities on behalf of U.S. agriculture can continue. Included in the budget is funding to pay for higher operating costs at overseas offices, including increased payments to the Department of State for non-discretionary administrative services. In addition, recent declines in the value of the dollar combined with overseas inflation and rising wage rates have led to sharply higher operating costs that must be accommodated if FAS is to maintain an effective overseas presence.