1. 30 CARGILL NEWS September-October 2015
Making the
Case for
Free trade promises
widespread economic
benefits—but must overcome
fear, distrust and politics.
BY EDWARD WELSCH

2. September-October 2015 CARGILL NEWS 31
WHEN PILLOWTEX CORPORATION shut down its Kannapolis, North
Carolina, textile manufacturing plants in 2003, it was the largest
layoff in the state’s history and a personal loss for 7,600 workers.
“It was like everybody in Kannapolis got a punch in the stomach
… it was like your favorite uncle died,” a laid-off worker told the
local newspaper. For newly unemployed workers there was an easy
target to blame: free trade.
North Carolina’s textile industry had been among the largest in
the world for decades after the U.S. Civil War, and employed nearly
20 percent of the state’s population at the peak of its prosperity
in the 1970s. But industrialization in the developing world rapidly
eroded its competitive position since then. By 2012, four-fifths of
the state’s textile jobs were gone, and Asian countries including
China, India and Bangladesh established their dominance over
the industry. Today China alone produces more than a third of the
world’s textiles, and “Made in China” is the most common cloth-
ing label in U.S. stores. Many argued that the international market
squeezed out domestic manufacturers.
More than 10 years later, examples like the Pillowtex case are
being revived by opponents of international trade as the U.S. con-
cludes negotiations of the Trans Pacific Partnership, or TPP. TPP
is a 12-country trade agreement between the U.S. and Pacific Rim
countries in Asia and Latin America that make up 40 percent of the
world economy. It’s one of the most significant world trade deals
in decades and promises major economic benefits to the countries
involved. TPP’s opponents say the deal will harm local workers,
and they can make a powerful emotional argument by pointing to
individuals who lost their jobs to international competition.
Making the case for trade requires looking at the big picture.
The benefits of free trade are numerous, but sometimes harder to
see because they are spread across society. From higher wages for
workers and lower prices for consumers to less strain on natural
resources, free trade agreements set standards for workers’ rights
and the environment that wouldn’t otherwise exist. In the case of
food, international trade is vital to deliver safe, affordable and nutri-
tious food to a growing global population.
“If we don’t have free trade, we won’t have enough food for 9 billion
people by 2050, or we’ll have to plant all over the face of the globe,”
Paul Conway, Cargill vice chairman, said in a recent interview. “Free
trade is the best way to grow the most food on the least land, in the
most affordable and least environmentally destructive way possible.”
Comparative advantage
The modern case for free trade goes back to the founding of eco-
nomics in the 18th century, when British economist David Ricardo
outlined the theory of comparative advantage. He hypothesized
that countries benefit when they specialize in industries where they
are most efficient and have the highest returns. By resisting the
temptation to bolster uncompetitive domestic companies by charg-
ing taxes on foreign imports, citizens everywhere pay less for goods
and are more productive and wealthy as a result.
Ricardo’s theory has been born out repeatedly through history.
For example, it’s always been enormously costly for Japan to grow
its own food because of its small land mass, only 12 percent of
which is available for farming. As it industrialized, Japan focused on
developing its technical expertise in manufacturing electronics and
automobiles for export, and importing its food. Today, Japan pro-
duces only 39 percent of the food it needs, down from 73 percent in
1965. By effectively outsourcing its food production to the U.S. and
other countries and focusing on manufacturing, Japan has become
the third-largest economy in the world.
Even though Japan has relatively low barriers to most imports,
it still uses trade policies that significantly increase prices for food
and agricultural goods, said Norman Bessac, vice president of inter-
national pork sales for Cargill.
“If you look at a comparable serving of pork sold in Japan as
opposed to the U.S., it costs consumers three or four times as
much,” Bessac said. Japan’s tariff aims to give Japan’s domestic
pork producers a boost, but they have Ricardo’s law of comparative
advantage working against them.
“One of the biggest drivers of the cost of pork is grain, and places
like the U.S. have a reliable supply of that,” Bessac said. “If you’re
going to produce the same pork in Japan, you’re going to have to
rely on importing corn and feeding it to the animal over there. So it’s
not the most efficient way to get protein to the consumer.”
Japan is one of the countries involved in the Trans-Pacific Part-
nership deal, which would lower agricultural tariffs if it is adopted,
and make it easier for Japanese consumers to access food grown
overseas.
“If you look at where the surplus land, water and sunshine are
to make food, it’s essentially in Canada, the U.S., Brazil and sub-
Saharan Africa,” Conway said. “The argument I’ve made from a food
security angle, is that the biggest proponents of free trade should
be Asians because they’re in food deficit.”
The self-sufficiency trap
However, Conway and other executives note that worries about
food security tend to drive countries away from free trade agree-
ments, in part because of poor decisions made by producing
countries in the past.
On January 4, 1980, the U.S. put in place a grain embargo to try
to punish the Soviet Union for invading Afghanistan. Never before
had U.S. food exports to the U.S.S.R been suspended in pursuit
of a noncommercial foreign policy objective. The “food weapon”
had been taken from the shelf. Countries that relied on the U.S. for
their food supply suffered as a result. In more recent years, Russia
and South American countries have also put in place bans or high
export taxes for political reasons, and to make the price of goods
cheaper for their citizens.
“We’ve broken the trust barrier, historically, which encouraged
many countries to turn toward self-sufficiency,” said Cargill Vice
Chairman and Chief Risk Officer Emery Koenig.
One of the most striking examples of this was a 30-year program
put in place by Saudi Arabia to grow wheat and other grains in a
desert climate, Koenig said. They produced the wheat at an exorbi-
tantly high expense, paying as much as nine times the world market
price to ensure they always would have an adequate supply. Worse,
TRADE
JonYeager

3. 32 CARGILL NEWS September-October 2015
the water they were using was pumped from nonrenewable water
reservoirs deep underground. The government finally abandoned
the policy in 2008, and is relying again on the international markets
for their food supply.
“Self-sufficiency is not the answer,” said Koenig. “The world will
always raise the most food the most economically and in the most
environmentally responsible way when farmers plant the right crops
for their local climate and soils using the right technology, then
trade with others for the benefit of all.”
Distrust is one of the reasons tariffs on agricultural goods
remain higher than on other goods in most countries. The average
global tariff rate on agricultural goods is about 15 percent,
compared to single digits rates for other
products, according to World Trade
Organization data.
Cargill sees formal trade agreements
as the way to reinforce trust in a market-
based food system and to encourage
countries to abandon attempts to become
self-sufficient. Signing formal agreements
sets the rules for trade, and establishes
a process where disagreements can be
settled through arbitration at international
bodies like the World Trade Organization.
That makes it far less likely that food-
producing countries will leave buying
countries in the lurch as in years past.
“By encouraging trade in a fair, rules-based, rigorously enforced
system, free trade agreements can help ensure that food surpluses
reach areas of deficit,” said Koenig.
Additionally, because the global food supply has much less price
variation year-over-year than the local supply, free trade agree-
ments can have a stabilizing effect on food prices. On the other
hand, Koenig notes that by closing borders and attempting to
endure weather disruptions and price volatility alone, nations end
up forcing higher food prices on all of their citizens.
“There can be a need for governments to provide a safety net in
the event of emergencies,” said Koenig. “But if every country set a
goal of food self-sufficiency, the world would have much less food.”
Taking risk out of the supply chain
It isn’t just tariffs that restrict the flow of goods between countries.
Food exports face special barriers that are often even more restric-
tive: a disparate patchwork of food safety standards that differ
from country to country, some without a scientific basis and often
arbitrarily applied.
Bessac gave the example of U.S. pork exports to China, which
can contain trace amounts of a growth promotant. Though the
trace amounts are less than the 10 parts per billion allowed in the
international Codex Alimentarius food standards established by
the United Nations, China officially has a “zero-tolerance” policy for
the growth promotant. The result is an uncertain situation where
exporters don’t know whether a cargo will be rejected.
One of the goals of trade deals like the Trans-Pacific Partnership
is to get countries to agree to follow a set of international standards
for food safety such as the Codex Alimentarius, so that food can
cross borders without being turned away.
“We believe that if something has been recognized as safe by a
government using an international safety standard, there should be
some tolerance,” Bessac said. Relaxing zero-tolerance policies on
foods that have been found safe by international standards would
lower the overall risk of the global supply chain, which may benefit
food prices.
“If there’s more risk in moving something around, it’s going to
cost more and the price tends to go up,” he explained.
Though China is the largest economy in Asia, it isn’t a part of the
TPP agreement. But by setting standards for trade for the region,
China may be encouraged to adopt them as well.
“The hope is that TPP will give us a more predictable environ-
ment and a more level playing field,” Koenig said. “That will help
take the risk out of the international food system, making it more
reliable and something food importers and exporters can trust.”
Job destroyer or job creator?
All of the benefits of trade are still cold comfort to the Pillowtex
workers who lost their jobs to foreign competition. But are these
lost jobs really the result of trade agreements?
The greatest competitive pressure for Pillowtex came from China
and India, which don’t have free trade agreements with the U.S.
With or without free trade, the growth of China as a manufacturing
powerhouse in recent decades made it nearly impossible for the
North Carolina textile industry to survive. In fact, if the Trans Pacific
Partnership agreement had been signed decades ago, the U.S.
textile industry may have fared better, as signers have agreed to
lower tariffs on U.S. textiles.
Despite the loss suffered by the Pillowtex workers, the North
Carolina economy recovered strongly in the years after the Pillow-
tex closure, as it was already shifting its focus from textiles to areas
where it had a better comparative advantage. The state became
a regional hub for biotechnology and information technology, and
agricultural production for export also surged, reaching $3.9 billion
in 2012, a 189 percent increase from 2005, according the state’s
Department of Agriculture and Consumer Services.
The industries that replaced the textile jobs tended to be higher
paying jobs, and the state focused more on growth of its export
industries. North Carolina’s trade-related jobs have grown nearly
four times faster than total employment since 2004, and trade jobs
pay on average 18 percent more than non-trade jobs, according to
the Business Roundtable. Those results could have been predicted
by the law of comparative advantage: as the state’s industries
adapted to realities of the global economy, they became more
efficient and were able to pay workers more.
Not only was the state’s economy able to redeploy resources to
more lucrative industries, consumers across the U.S. also benefited
as China was able to supply garments more affordably than North
Carolina.
The U.S. Congress is debating the Trans-Pacific Partnership
deal, and Cargill has been a prominent voice on Capitol Hill making
the case for trade. Despite all the demonstrable benefits, it’s often
politically hard to counter the more poignant stories of individuals
who feel they have been negatively affected by trade.
Cargill Vice President of Corporate Affairs Devry Boughner
Vorwerk has been at the forefront of the company’s efforts to
promote trade in Washington, D.C., and she acknowledges the dif-
ficulty of the task.
“It’s a hard argument to make—it doesn’t have the same emo-
tional resonance as a person who’s lost their job,” she said. “But it’s
a debate we must be willing to have, because the consequences
of turning away from trade—the impact on food security and eco-
nomic prosperity—are so great.”
Cargill Vice President of
Corporate Affairs Devry
Boughner Vorwerk is at
the forefront of promoting
trade in Washington, D.C.
DavidBohrer,U.S.ChamberofCommerce