Colorado’s beef producers see big chill ahead if NAFTA goes away
October 21, 2017
If the North American Free Trade Agreement ends, it could mean a very big chill on one of Colorado's biggest industries: beef.
Today, Colorado beef producers enjoy duty-free, unlimited access to Canada and Mexico, the state's top trade partners. The Colorado Cattlemen's Association estimates Colorado sells a combined $380 million in beef to the two countries each year.
If NAFTA goes away, trade between the U.S. and its North American neighbors could revert to rules maintained by the World Trade Organization, said Joe Schuele, spokesman for the Denver-based U.S. Meat Export Federation.
Under those rules, Canada assesses a 26.5 percent tariff on all beef imports. Mexico assesses a 20 percent tariff on chilled beef and a 25 percent tariff on frozen beef. Doing the math on just the $171 million in beef the Cattlemen's Association estimates Colorado sends to Canada each year, tariffs could add around $45.3 million in costs to access that market alone. And that's not even considering any additional administrative costs.
Schuele puts it simply: "What's really going to happen is you'll move less product."
Of course, the U.S. could also apply tariffs of its own on goods from its NAFTA partners. Beef imports from those countries could face duties of anywhere from 13.5 to 26.4 percent, which could help boost domestic sales.
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Tough talk, ultimatums and appeasement characterized last week's negotiations around proposed changes to NAFTA — dubbed "the worst trade deal in the history of this country" by President Donald Trump.
American officials say they want to reduce trade deficits and eliminate unfair advantages possessed by Canada and Mexico. Representatives from those two countries meanwhile argue that negotiators from Washington have come into the NAFTA talks with a "winner take all mindset" that threatens the future of the trilateral partnership.
With the talks between the three countries now expected to continue through March, which many view as signaling the end of the 1984 deal, businesses and consumers are left to speculate about the future of NAFTA and the integrated North American economy that has evolved in its wake.
One in five jobs in Colorado is tied to international trade, said Karen Gerwitz, president and CEO of the World Trade Center Denver. In 2016, Colorado sent $1.07 billion in goods to Mexico, and imported $1.57 billion. Canada took in $1.36 billion in Colorado exports and sold $2.76 billion in products here.
Tweaking NAFTA in a way that would end duty-free market access on certain goods could have wide-ranging impacts on even simple things like ordering a meal, trade advocates say.
"The consumer would be harmed the most," Gerwitz said. "With beef, cattle might go through eight or nine border changes before the steak goes on your plate. It's very normal for products to do that."
Gerwitz elaborated that, hypothetically, bull semen might be imported from Mexico to impregnate cows in America. The calves might then be fattened up with feed bought in Canada and could be sent to another state for slaughter and processing. The meat might then be sold in any of the three countries.
The way electronics are made is another example of the complex business ecosystem that has evolved in the nearly quarter century since NAFTA took effect. Some electronic medical devices are created using parts from two or even all three countries, Gerwitz said.
"It's about untangling reliance on partners that make things together," she said.
Centennial-based Fortune 500 company Arrow Electronics operates one of the largest technology supply chains in the world. Company officials declined to speculate on potential impacts of NAFTA renegotiation to that business, but said they are paying close attention.
Colorado's largest export to Canada and Mexico is meat, primarily beef but including pork and other animal products, with those countries buying $293 million and $208 million worth from the state in 2016 respectively.
Terry Fankhauser, executive vice president of the Cattlemen's Association said even the threat of a 5-year sunset to NAFTA, which U.S. negotiators reportedly have proposed, could have a cataclysmic effect on the economy.
"It's not looking over the cliff, it's falling off the cliff," he said. "You cannot step away from infrastructure improvements on an on-again off-again basis. A sunset or a complete walk away both have the same effect, equivocally. It will plummet so many different economic sectors. We're going to drive up unemployment. We're going to push businesses of all sizes out of business."
Fankhauser and Gerwitz aren't opposed to renegotiation of NAFTA. Gerwitz noted cellphones weren't even in widespread use when the agreement was launched. Modernization and enhancement of the pact is both proper and necessary in her view, particularly when it comes to e-commerce.
But both agree doing no harm to NAFTA and keeping the agreement trilateral are paramount in renegotiating. Fankhauser pointed to the objectives outlined by the Office of United States Trade Representative in July. They included eliminating non-tariff barriers that constrain U.S. agricultural exports and expanding competitive market opportunities for those goods, things Fankhauser supports. Nowhere in that document is the threat of leaving NAFTA mentioned, and that's the way it should be, he said.
"This is an adult relationship and it needs to be handled in an adult way," Fankhauser said.
Some companies in Colorado do have specific goals they would like to see achieved through negotiations.
Sue Taylor is vice president of economics and policy with Denver-based dairy company Leprino Foods, which operates a plant in Greeley. She said that while protecting the valuable Mexican dairy market is paramount, Leprino sees negotiations as an important opportunity to "open the Canadian market and discipline Canada's trade distorting behaviors related to dairy" that have not yet been addressed in NAFTA.
"Canada maintains very high protections on its dairy markets, applying 245 percent tariffs on most dairy product imports," Taylor explained in an email. "Additionally, they have established internal milk pricing mechanisms that allow them to maintain extraordinarily high prices in their domestic market for most dairy products while setting artificially low milk prices for surplus milk powders to prevent milk protein imports as well as to supply onto the world market at levels that undercut all major competitors."
Chicago-based steel manufacturer Evraz North America, which operates the Evraz Rocky Mountain Steel facility in Pueblo, feels that negotiations could benefit the steel industry in all three countries.
"The U.S. steel industry is committed to upgrading NAFTA to strengthen rules of origin and enhance regional value content requirements to incentivize investment and job growth in the region," a company spokesman wrote in an email. "A renegotiated NAFTA should aim to increase the demand for steel produced in North America, and allow for greater market access of NAFTA steel within the NAFTA region."
Evraz operates multiple facilities in Canada as well as four U.S. states. The company's largest shareholder is Russian billionaire Roman Abramovich.
However the trade talks shake out, it's clear the folks who work at the Colorado capital value the economic relationships with Canada and Mexico.
This summer, Gov. John Hickenlooper personally met with Canadian Prime Minister Justin Trudeau. During that meeting, state officials say the governor expressed his interest in maintaining a strong, cooperative relationship with the country. Those officials say the same sentiment applies to Mexico.
"This is not a zero-sum game. It's not necessarily we're in NAFTA or we're not," said Connor Murphy, diplomacy manager for the Colorado Office of Economic Development and International Trade. "We're certainly not keeping our fingers crossed and saying, 'Hopefully, that works.' We're also taking our own direct path."