International trade experts within the potato industry are encouraged by a new trade agreement with China but have concerns about a rise in frozen fry imports from Europe.
Matt Lantz, vice president for global access at Bryant Christie, summarized international trends and trade issues during the recent National Potato Council summer meeting, hosted online.
The export market for U.S. potatoes continues to grow, and while the COVID-19 pandemic has resulted in a reduction of exports, there’s still promising news in the international markets for U.S. potato growers, he said.
Lantz outlined the successful trade agreement with China, which opens the Chinese market to chipping potatoes from the Pacific Northwest.
“The good news is on Feb. 25, 2020, after 20 years of negotiations, we reached an agreement with China,” he said. “That agreement was officially put into place on April 23, 2020. That was a hard-fought agreement all the way to the end. COVID-19 certainly had an impact. There were multiple overnight negotiations.”
Lantz said that there were many meetings during negotiations when he didn’t think that they would reach an agreement. He said the agreement represents and incredible step for the potato industry.
“This was my white whale,” Lantz said, comparing the negotiations to Ahab’s quest in Herman Melville’s novel “Moby Dick.”
There are phytosanitary measures regarding testing for zebra chip and silver scurf that exporters must meet but Lantz described it as a “very reasonable agreement and we’re very fortunate to have it.”
He hopes to add other states to the chipping agreement and then focus on an agreement with China for U.S. table stock potatoes. However, he struck a cautionary note of the likelihood for future successful trade agreements with China.
“I think in an election year, who’s going to be harder on China is going to be a campaign issue,” Lantz said. “So, I don’t foresee major trade progress between now and the election. I think the COVID issue and blaming China for the COVID problem and being tough on China is going to be seen as a campaign advantage and so new trade talks are probably unlikely.”
Lantz tempered the good news with some bad news: The U.S. is seeing a continued increase of french fries imports from the European Union.
“There has been a major surge of fries from the EU, and I say the term ‘surge’ very deliberately,” Lantz said. “I do not say dumping, dumping is a legal term. It’s very hard to prove and it deals with cost of production.”
According to Lantz, in 2015 the EU exported $12 million worth of fries to the U.S., in 2018 E.U. exports totaled $55 million, in 2019 the value had grown to $80 million and in the first four months of 2020, the E.U. imported $44 million in fries.
“Currently there is an 8% tariff on European fries and the quickest, cleanest way to address this would be to have a tariff increase on fries,” Lantz said. “Now you can’t just slapdash raise tariffs. That’s just against the rules. You have to have a reason to do so. There are some opportunities though. Right now the Trump administration is investigating a European Union digital tax policy, which we think is illegal. If they were to advance on that, there would probably be a tariff retaliation, and if that occurred we would want to make sure that fries from Europe would be included on that.”
Lantz said that NPC has been monitoring the situation and is engaged with the U.S. Trade Representative’s office and the USDA’s Foreign Agricultural Service office to see what measures can be done.
Another trade issue that has been grinding on for years is free trade access to Mexico. If the China negotiations represented Lantz’s Moby Dick, he might find an apt metaphor in Dante’s “Inferno,” with its nine concentric rings of Hell, to describe the ongoing Mexico trade issue, which remains locked up in Mexico’s judicial system.
According to the NPC, Mexico represents the third largest export market for U.S. potatoes with $122 million in frozen potato exports, $32 million in dehydrated exports and $37 million in fresh exports.
For years, U.S. fresh potatoes were limited to a 26-kilometer zone crossing the Mexican border. The U.S. potato industry is seeking to open the entire country of Mexico to fresh market potatoes.
In 2014 a bilateral trade agreement between the U.S. and Mexico opened the entire country of Mexico to U.S. potatoes. Soon after the agreement took effect Con Papa, an organization representing Mexico’s potato growers, filed a lawsuit against the Mexican federal government that halted the trade agreement in its tracks.
Since that time the U.S., the NPC, and Mexico’s Department of Agriculture, Sargapa, have been united in fighting Con Papa’s multiple lawsuits as the go through Mexico’s legal system.
NPC CEO Kam Quarles said Con Papa is perfectly content to continue the stalling technique with constant delays through the judiciary.
“Our opponents, in my opinion, don’t really care if they get a positive ruling out of the Supreme Court,” Quarles said during the Trade Affairs virtual meeting. “Just doing nothing is to their benefit because they get to keep us largely out of the market so these delays have served their interests.”
Quarles said that the NPC’s attorneys in Mexico had recently received notification that Mexico’s Supreme Court is beginning to work on issuing a ruling on one of the several cases involving Con Papa and Sargapa.
Quarles said that there are three possible outcomes: The court could rule in NPC’s favor; it could rule against U.S. potatoes entering Mexico; or they could send the case back to the starting line.
“It’s hard to imagine they would take such draconian steps,” he said of the second outcome.
“The third way is the one that worries me,” he said, “where they say legally the Mexican authorities have the ability to issue the ruling that they did on potatoes and thereby on every other commodity. They just made some mistakes on how they issued it, procedural mistakes, and so go back to the starting line and we’ll see you in a decade or more.”
Quarles said that while he is hopeful of seeing a ruling in their favor later this summer, should the court rule against the NPC, the U.S., Mexico, Canada Agreement, which takes effect on July 1, 2020, could provide relief. It contains a dispute resolution mechanism that he said merits looking into.
“I think that we as an industry may need to think seriously about using that dispute resolution mechanism,” he said. “It’s a decision that’s handled government to government so we would have to convince the administration to move forward with that. But I don’t think that we can allow ourselves to be stuck on a never-ending carousel of legal machinations that effectively give our competitors what they want.”
Other positive market access updates included approval by South Korea for Montana and Colorado seed potatoes to be used in the Pacific Northwest table stock and chipping potatoes program.
Jared Balcom, NPC vice president of trade affairs, said that the USDA is presently working on a bilateral free trade agreement with the United Kingdom with duty-free access for potato products.