Agricultural products have always been one of America's major export industries, and improving American farmers' access to foreign markets was a key negotiating objective for the United States in putting together the Trans-Pacific Partnership. At the same time, no domestically focused agriculture industry is cheering the TPP as an unmitigated victory. But the most powerful domestic industries in particularly rich TPP countries fared a lot better than others.
"In part because there was such a last-minute push and desire to get it all done, there was a degree of settling," says Phil Levy of the Chicago Council on Global Affairs.
The result is an agreement that is long on complicated details and kludgy compromises in a way that defies easy summary. But it should add up to a major change in global patterns of trade in meat and dairy products: with cow products crisscrossing the Pacific from the United States to Asia and from Australia to Canada, while also significantly boosting US output of staple crops like corn and soybeans. But beyond simple changes in trade patterns, TPP also encodes a major conflict between the United States and Europe over philosophical approaches to regulation, with the US government and US farm producers trying to convert Asia to their lighter-touch approach in hopes of eventually defeating the more intense European regulatory framework on a larger world stage.
American soybean farmers scored a huge win
On the face of it, the biggest winners from the TPP in American agriculture are livestock farmers and ranchers. The TPP cuts import taxes (i.e., tariffs) on meat products sent from one TPP country to another. In many cases, it eliminates the tariffs entirely over time. That's a big market opportunity for US producers who are looking to sell more beef and chicken to densely populated Asian countries such as Vietnam and Malaysia, whose growing economies are fueling middle-class appetites for meat.
But the biggest winners aren't ranchers — they're soybean farmers. TPP provides soybean farmers with more export opportunities, but also stands to create substantially more demand for domestic consumption of soybean products as livestock feed.
- Export benefits: The US makes more money exporting soybeans than it does off any other crop (and it isn't close). The US already sends $5.5 billion in soybeans and soybean products (like oil and meal) to the TPP countries a year. Soybean growers are assuming that once consumers no longer have to pay higher prices to cover the cost of tariffs, they'll buy more of them.
- Domestic benefits: What most excites the American Soybean Association is the TPP's reductions in meat tariffs. That's because while more than half of American soybeans grown right now get shipped abroad, the domestic market is large in its own right, and it's driven by consumption of soybean meal for farm animals. The more US-grown meat Asian people eat, the more US-grown soymeal America's farm animals will consume.
The industry is also looking forward to a broader, tertiary effect. If the TPP helps create a class of affluent consumers in emerging countries like Vietnam and Malaysia, argues Patrick Dempsey, the director of policy communications for the American Soybean Association, that's good for American agriculture, too.
"As economies develop and really emerge, their taste for meat protein increases," Dempsey says. "There's this idea of the meat protein continuum: You start at fish, then you go to chicken, then you go to pork, then you go to beef." All of those changes are presumably good for American exporters — but especially beef, Dempsey says. Not only is it the highest level on the continuum of meat consumption, but "smaller countries tend not to have enough land resources to raise beef." So they end up with a significant demand for imports from the sparsely populated United States.
Beef tariffs will remain in Japan
Even as tariffs tumble in developing Asia, the agriculture provisions of the TPP will allow Canada, the US, and especially Japan to maintain tariff protections for domestic producers, albeit at reduced levels. The ultimate impact of these changes is a little difficult to estimate in advance.
When it comes to beef in Japan, for example — a product America shipped $2 billion of to Japan last year, despite tariffs as high as 35 percent — even American farmers are in disagreement with one another about whether the TPP improved their access to the Japanese market.
The TPP drastically cuts beef tariffs for Japan: Eventually, the basic tariff will fall to 9 percent. But there's a "safeguard" provision — otherwise known as a "snapback" — that gives Japan the option of bringing tariffs back up to a high rate if the amount of volume of beef imports soars too high.
The National Farmers' Union says the snapback provision basically wipes out any benefit to US farmers from Japanese tariff reduction. In a statement, the group described beef export opportunities under the TPP as "very modest."
But Kent Bacus of the National Cattlemen's Beef Association, generally a less politically left-wing group than the NFU, is more sanguine and says that while the snapback is "not ideal, it's still much better than the current framework."
His logic: Right now, Japan already hikes tariffs when imports exceed a certain amount — meaning tariff rates can reach 50 percent. Under the TPP, the "snapback" rate would start at only 38.5 percent. Furthermore, as time goes on, Japan would have to increase the amount of beef it could let into the country before applying snapback rates, while reducing the amount of tariff it could charge. Sooner or later, Uden suspects, Japanese beef imports won't even meet the threshold for snapback to begin with.
Even if the more pessimistic projections of the National Farmers' Union were right, "very modest" opportunities would still be better than no opportunities at all.
What really worries the National Farmers' Union is that the US is cutting its own tariffs for beef imports — eliminating tariffs on Wagyu beef from Japan, as well as on beef from Australia and New Zealand.
"Japan’s protection, coupled with the very generous access the U.S. gave the rest of the world, will likely push down domestic prices," NFU's statement says.
Conversely, ranchers from Australia and New Zealand are thrilled about the deal: New Zealand alone exported $1.5 billion worth of beef to TPP countries in 2014, and the United States was the biggest market of all. But here, too, the National Cattlemen's Beef Association is more optimistic about TPP than the Farmers' Union. The NCBA agrees that the domestic market for beef consumption will get a little more competitive, though Uden maintains that "we're not giving up a whole lot" to Australia and New Zealand in comparison with the TPP's "tremendous opportunity in Japan, in Malaysia, in Vietnam." But Uden also claims that sometimes importing beef can actually help American beef producers charge more for their products.
"Most of that beef we import" from Australia and New Zealand right now, Uden says, "is used in commercial beef. We mix that with 'trim' — some of the fat from US beef — to meet the growing ground beef demands here in the United States. And some of those muscle cuts that we would be using for ground beef, we're turning into higher-value cuts like flat iron steaks, which yield a better profit."
Japan will pay farmers to grow rice they don't sell
One odd example of the contortions national governments ended up going through to make the full interest group politics of TPP work comes from the Japanese rice industry.
Japan ended up making significant concessions to would-be rice exporters in the TPP itself — although negotiations on rice tariffs literally ran up until the morning the deal was finalized in early October — but got the Japanese government to pick up the slack domestically. The deal cuts Japanese rice tariffs moderately, and increases the amount of rice the US and Australia can export to Japan with no tariff by 84,700 metric tons. But Japan has agreed to offset that by purchasing 84,700 metric tons of domestic rice each year "for stockpiling, thus isolating it from the domestic market and preventing any falls in the domestic price," according to the East Asia Forum.
Canadian dairy protectionism will relax slightly
The Canadian dairy industry managed to turn TPP's treatment of its interests into an issue in the country's general election this fall. The industry is currently governed by a philosophy called "supply management." Sylvain Charlebois of the University of Guelph described this to the Financial Post as meaning "producing what we need domestically, and that's it." Canadian dairy production is regulated by consumer demand; it isn't designed for export, and it doesn't allow tariff-free imports, either.
The TPP doesn't exactly throw Canada's dairy market totally open to competition, but it does begin to pry the door open. The deal requires Canada to allow an amount of dairy imports equal to 3.25 percent of domestic dairy production — as measured by butterfat content.
Cow-rich New Zealand and Australia, in particular, are greatly frustrated that the deal doesn't do more to open up dairy markets (or sugar markets, thanks to the US). But it's a fundamental change in the type of policy Canada is using to regulate dairy. The TPP means the country is moving away from pure "supply management," in which domestic production and domestic demand are equal, and toward something different. (The US sugar industry, which also got largely protected from the TPP, is also described as operating on "supply management" principles.)
So Canadian dairy farmers are worried about a "slow erosion" of supply management. As Sandra Da Silva of the Dairy Farmers of Canada said, "We continue to persist in saying that the best scenario would have been no access granted to the Canadian dairy market" at all.
A new food safety framework will help American grain farmers
Safety regulations are set by individual countries, but they obviously have a powerful influence on trade: One country can simply block an import from another country if it doesn't meet regulatory standards. That means, of course, that an importing country could hypothetically use strict regulations as a replacement for tariffs, as Levy of the Chicago Council explains: "If I can slap a 100 percent tariff on your product, I don't have to argue it's unsafe. But now that I have to get rid of (the tariff), I might want to claim, 'Aah! Her things will kill you within two years.' It has the same effect, it keeps them out, but I didn't need to resort to that earlier." These are called technical barriers to trade, and the TPP's chapter on sanitary and phytosanitary (SPS) issues seeks to reduce them.
The US Grains Council, in an article praising the TPP, brings up an example:
Mexico recently held up shipments of U.S. corn because it required additional fumigation under the presumption that the shipments had excessive soil contamination. [...] The SPS incidents started occurring after Mexico was unable to apply new raised tariffs to corn imported from the United States and Canada due to the North American Free Trade Agreement.
SPS agreements like the one in the TPP don't directly set standards for fumigating corn or anything else. Instead, they represent an agreement by the participating countries that they all share the same principles in safety regulation — and, sometimes, a mechanism for one country to challenge another if it thinks those principles are being violated.
In other words, SPS agreements don't require anyone to regulate imports more strictly (although they do include guidelines for when importers can inspect facilities in exporting countries). But they can pressure countries to deregulate. For that reason, SPS agreements in trade deals in general are distrusted by progressives who see SPS as a way for American businesses to force poorer countries to accept inferior or unsafe products through sheer economic force.
But this is also a philosophical disagreement about when a government should regulate particular ingredients or processes: Do you assume that something is safe until it's proven not to be, or do you assume it's harmful until it's proven safe? The US advocates for the former approach, which it calls "scientific." Europe takes the latter approach, which it calls "precautionary."
The World Trade Organization's standards for SPS say it's sometimes okay for countries to take a precautionary approach to food safety, but they also say regulations should be based in science. That's created constant haggling over what exactly those terms mean. Most trade agreements simply echo the WTO's language on SPS. The TPP very much does not. Instead, it fully embraces the "scientific" side of the argument: Substances should be safe until proven otherwise. By extension, if a country bans a product — or simply forces a company to go through more effort to meet safety standards — just because something's untested is sufficient reason for a TPP exporter to accuse the importing country of protectionism.
It's no mistake that the adoption of "scientific" standards is happening in a trade deal that doesn't include European countries. The US is hoping that the TPP, especially as other countries join it, helps create a countervailing power to Europe when it comes to bigger international fights over regulation — especially if, as it hopes, the Southeast Asian countries involved in the TPP continue rapid economic growth. As Levy says, "You can set these standards and then say to your French friends, 'Aha! Fait accompli!' "
More American regulations on products like catfish might get challenged
Another way the TPP encourages deregulation of national food safety regimes is by increasing the speed with which one country can challenge another's regulations.
The government stresses that losing a regulatory challenge doesn't result in automatic deregulation, just the reinstatement of tariffs on the losing country by the winner. But that's only a punishment because no country's businesses want to deal with tariffs again. So progressive groups are concerned that business interests will pressure their governments to deregulate (or water down regulations) to resolve disputes quickly.
What's especially worrisome about the TPP in particular, to progressive critics, is that it encourages countries to resolve regulatory fights quickly and informally. When one TPP member blocks an agricultural import shipment from another, it has seven days to notify the exporter as to why the shipment's been blocked and what information it needs to get the dispute resolved. Industry groups like the US Grains Council love this idea, arguing that it ensures that trade disputes can be resolved quickly without forcing perishable exports to go to waste.
Conversely, when a country exporting a good to another TPP member believes it's being asked to meet "unscientific" regulatory standards, it doesn't have to go through the formal (and time-consuming) dispute process; it can set up a quick bilateral meeting within 30 days, and the two countries are encouraged to figure out a plan to resolve the dispute within 180 days.
Historically, it's been more typical for America to use SPS challenges against other countries than the other way around. And since America is a lot wealthier than most of the countries it's challenging, with more money to pay its lawyers, it tends to win. So for economic reasons, as well as political ones, America has a reason to push SPS standards that make it easy for countries to deregulate.
But the relative ease of challenging another country within the TPP agreement, according to TPP critic Steve Suppan of the Institute for Agriculture and Trade Policy, could make challenges to US regulations more common — especially as subsidiaries of multinational corporations pop up in emerging Southeast Asian countries.
In fact, the US has already seen a glimpse of what that future might look like: catfish.
In 2008, the domestic catfish industry, which is anchored in Mississippi and Louisiana, successfully lobbied the government to increase safety inspections and regulations on catfish. It arranged for catfish inspections to be moved out of the purview of the Food and Drug Administration (which handles all other seafood regulation) and into the purview of the US Department of Agriculture, which conducts more frequent inspections and has stricter guidelines. American catfishers were worried about the increasing volume of Vietnamese catfish imports, which were being raised under lower regulatory standards, particularly when it came to antibiotics in the water supply, than American catfish were.
It took a long time for the US to finalize the regulatory shift. And suddenly, this spring, it briefly looked like it wouldn't happen at all. Vietnam was in the late stages of negotiating the TPP with other member countries, and it felt that the catfish regulations were exactly the kind of "unscientific" thing the TPP was designed to protect. It purportedly threatened not to open its market to American beef unless the US agreed to keep the old catfish inspection standards.
The US won the standoff — nothing about the catfish was included either in the main text of the TPP or in the US's separate agreement with Vietnam. But that's not to say that, somewhere down the line, Vietnam can't decide that the US is in fact implementing its catfish regulations in an unscientific manner, and force the US to the table to work out a solution.
An agreement for farmers, not eaters
The overarching story of TPP's agricultural provisions is that even though everyone eats food and only a few people grow it, national negotiating priorities in rich democracies consistently reflect the interests of farmers rather than eaters. The Canadian government sought to protect the country from the threat of cheaper milk and butter, while America partially staved off lower prices from imported Australian beef (while making sure its beef producers got access to export markets). Japan did agree to let its population avail itself of cheaper rice, but is doing so only reluctantly and is offering Japanese rice farmers monetary compensation.
The hope is that out of this muddle of producer interests arises a series of wins for consumers, and on the tariff side, at least, it's easy enough to trace the lines through which that happens. But as modern trade deals increasingly reach into regulatory issues that are contentious domestically as well as internationally, the elite-focused nature of the negotiations creates anxiety among those predisposed to worry about underregulation of major industries.