NAFTA and the Saga of the Corn

Agenda
Background Dispute provisions Agriculture Corn in Mexico Key strategic objectives Post corn tariff effects Recommendations Q&A

NAFTA Background
NAFTA was preceded by an agreement between Canada and the United States called the U.S-Canada Free-Trade Agreement (FTA) which was effective on January 1, 1989, and is now suspended due to NAFTA. The NAFTA , which took affect on January 1, 1994 , called for the phasing out virtually all restrictions on trade and investment flows among the United States, Canada, and Mexico over 10 years with a few of the most sensitive restrictions eliminated over 15 years.

NAFTA Dispute provisions

The NAFTA Secretariat is a unique organization established pursuant to Article 2002. It administers the mechanisms specified under the NAFTA to resolve trade disputes between national industries and/or governments in a fair, timely and impartial manner. Pursuant to the Parties' obligation to establish, permanent, national Section offices in each country, Canada and the United States simply renamed their existing national Sections to the NAFTA Secretariat, Canadian Section and the United States Section, respectively, and Mexico established its own national Section. The NAFTA Secretariat is comprised of : The Canadian Section located in Ottawa The Mexican Section located in Mexico City: and The United States section located in Washington D.C.

NAFTA and Agriculture

The NAFTA agreement on agricultural trade consists of three bilateral agreements- between the United Sates and Mexico, The United States and Canada, and Canada and Mexico. The United States- Canada agreement largely carried into NAFTA the tariff and no tariff barrier rules that had been adopted in the Canada United States Free Trade Agreement CUSFTA. Under the CUSTFA, most agricultural tariffs between the United States and Canada were to be phased out by January 1998, and NAFTA adopted this schedule. Canada however, was allowed to maintain permanent tariff quotas on imports of dairy, poultry, and eggs from the United States. The United States was allowed to maintain permanent tariff rate quotas on imports of sugar, dairy, and peanuts from Canada.

NAFTA and Agriculture

The NAFTA agreement on agricultural trade consists of three bilateral agreements- between the United Sates and Mexico, The United States and Canada, and Canada and Mexico. The United States- Canada agreement largely carried into NAFTA the tariff and no tariff barrier rules that had been adopted in the Canada United States Free Trade Agreement CUSFTA. Under the CUSTFA, most agricultural tariffs between the United States and Canada were to be phased out by January 1998, and NAFTA adopted this schedule. Canada however, was allowed to maintain permanent tariff quotas on imports of dairy, poultry, and eggs from the United States. The United States was allowed to maintain permanent tariff rate quotas on imports of sugar, dairy, and peanuts from Canada.

NAFTA and Agriculture

Virtually the same restrictions limited agricultural trade between Mexico and Canada. Mexico and the United States took far reaching steps toward complete liberalization of agricultural trade. The ultimate goal of their bilateral agreement was to eliminate all import quotas and tariffs with no exceptions. Mexican tariffs on corn and dry beans were subject to a 15 year phase out period, and the United States insisted on a similar transition periods for tariffs on winter vegetables, orange juice, and sugar. This particular tariff will end on January 1, 2008.

NAFTA and Agriculture

Between 1993 and 2003, US agricultural exports to NAFTA partners increased by very large percentages : Grains and feeds 128% Vegetables and preparations 90% Animals and animal products 69% Canadian and Mexican agricultural exports to the United States also increased significantly: Beverages excluding fruit juices 319% Sugar and related product 244% Vegetables and preparations 197% Fruit and preparations 196% Fresh cut flowers 1885% Grains and Feeds 131%

Corn in Mexico Society

Accounts for 60% of cultivated land Employs 3 millions farmers (8% Mexicos population and 40% of people working in agriculture) Total of 18 million people dependent on corn production Accounts for more than 2/3 of the gross value of Mexicos agricultural production, while horticultural crops account for only 6% One of the largest producers of white corn that are suitable for direct human consumption. Source: www.americaspolicy.org

NAFTAs Key Strategic Objectives and Its Actual Impacts

The reallocation of productive resources towards more labor intensive crops
Corn cultivation expands, yields drop

Cheaper imports to induce price reductions

Corn import cause 45% of price reduction

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NAFTAs Key Strategic Objectives and Its Actual Impacts

Tariff-free quota to expand 3% while over-tariff quota gradually phased out
Corn import exceeds tariff-free quota

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NAFTAs Key Strategic Objectives and Its Actual Impacts

Trade balance for agricultural sector to generate a significant trade surplus as comparative advantages develop their trade potential
Continuation of trade deficit in agricultural trade

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NAFTAs Key Strategic Objectives and Its Actual Impacts

Fifteen-year transition period for alignment of domestic prices with international prices
Transition period truncated

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NAFTAs Key Strategic Objectives and Its Actual Impacts

Tortilla prices would be reduced as cheaper imports were in the domestic industries
Tortilla prices increase by 279%

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3 Type of Corn Producers

Competitive Producers Operate under irrigated and optimal rain-fed lands Use intensive technologies Drop of domestic price has reduced profitability, but does not threaten survival Intermediate Producers Operate on rain-fed lands Produce for local regional markets Profit has been significantly reduced or cancelled out

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3 Type of Corn Producers

Subsistence producers Operate on rain-fed or under rain-fed lands On average own two hectares of rain-fed land, work their own land and participate in the rural labor market Stock harvest for consumption during the year Strongly affected by the inclusion of NAFTA

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The Impacts of Nafta on Subsistence Producers

Lower the value of rain-fed lands Access to credit reduce Rural wage rates fall

Increased environmental degradation

Sell the harvest in buyer market Collective actions required during planting or harvest is affected

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Post Corn Tariffs- effects

For United States
Will export more yellow corn to Mexico May increase production and exports of white corn to Mexico Mexican food products demand will increase due to migration

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Post Corn Tariffs- effects

For Mexico
International competitive pressure Induce increased migration to urban Mexico and the United States Farmers may alter faming activities to include more livestock to export more beef to the US

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Recommendations

For Mexico
Improve upon shipping productivity Improve upon crop knowledge & technology Upgrade rain fed land to irrigated land Increase farmer credits from government Switch to more beef production to offset loss of corn exports

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Q&A
Questions ?

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