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Texas Agriculture Archive

January 17, 2003

NAFTA moves closer
to free trade promise

By Lana Robinson
Field Editor

Jan. 1, 2003 marked a significant date for the North American Free Trade Agreement (NAFTA). Additional tariffs were completely eliminated for both the United States and Mexico, moving NAFTA ever closer to a free trade zone. U.S. tariffs on imports of Mexican durum wheat, rice, limes, winter vegetables, dairy, and frozen strawberries were eliminated while Mexico phased out tariffs on imports of U.S. wheat, barley, rice, dairy, soy meal/oil, poultry, summer oranges, peaches, apples, frozen strawberries, hogs/pork, and tobacco.

On New Year's Day, Mexican farmers threatened to shut down the border to protest the expiration of tariffs on U.S. farm products. However, when Mexican President Vicente Fox Quesada expressed a willingness to work out an accord, the protest was called off.

The protest was just one of several leading up to the tariff elimination. On Nov. 21, Reuters reported that Mexican farmers blocked the entrances to the Senate building in Mexico City with sacks of grain for three hours, demanding renegotiation of the sections in the NAFTA agreement pertaining to agriculture. The protest was organized by the National Union of Agricultural Workers, the National El Barzón Movement and the Coalition of Democratic Urban and Campesino Organizations. Protesters charged that trade between Mexico and the other two NAFTA members, Canada and the United States, is "severely distorted" by the subsidies Canadian and U.S. farmers get from their governments. The farmers ended the demonstration after senators agreed to try to increase the budget for the agricultural sector.

Just days before, on Nov. 18, Fox announced a plan for insulating his nation's agricultural sector by reducing electricity and diesel prices for farmers and making credit more accessible. He also devised a plan for making deficiency payments to grain producers if market prices fall below certain levels. But Fox's agricultural budget for 2003 is $10.25 billion, a real increase of just 3.9 percent over 2002. According to Mexico's National Agricultural Council (CNA), the average Mexican farmer receives $722 in annual subsidies compared to much higher subsidies for U.S. farmers over the next decade under the new farm bill.

So what should be done? One thing that should not be done, according to AFBF Trade Specialist Teresa Howes, is to renegotiate NAFTA. On Jan. 3, Howes pointed out that U.S. exports to Mexico have increased dramatically since NAFTA's inception. But Mexico has fared well, also. She noted that Mexico's exports of ag products to the United States have doubled since the agreement was put in place. So some adjustments may be okay, but it is unlikely that either country wants to erode those gains, Howes said.

"What both sides have agreed to do is negotiate a longer phaseout that would keep poultry exports from the United States continuing at the same or improved level and at the same time reach the end objective of zero duties by the end of 2008," the AFBF trade specialist reported.

Although many Mexican farmers are asking for renegotiation of NAFTA, Howes said she believes the Mexican government and the United States government have both indicated their firm belief that the NAFTA agreement has to be implemented as agreed, "to a large extent."

"I think that the most important thing for U.S. agriculture overall is to ensure that these are implemented on time. We don't want to see a large scale renegotiation of the agreement or a reopening of these packages because what we will lose—what we stand to lose—is the increased market access to Mexico that we've gained in recent years. There's been a little bit of adjustment made from both poultry and some adjustment for sugar, but I think both sides have acknowledged that if you start to unravel the agreement wholesale there could be large costs," said Howes.

Mexico's chicken industry, the world's sixth largest, would be hard hit if tariffs on U.S. poultry were abruptly ended. Mexico reduced tariffs on chicken from 99 percent in 2001 to 49 percent last year. If tariffs are completely eliminated, the 1 million Mexicans who work in that country's $2 billion-a-year chicken industry would likely be out of jobs.

Already Mexico is one of the largest buyers of U.S. poultry because American-produced poultry, even with tariffs added, is often cheaper than Mexican poultry. That explains why the U.S. chicken industry has agreed to allow tariffs on chicken parts to increase back to 99 percent in 2003, then drop them 20 percent a year for five consecutive years following.

In addition to the farm subsidy advantage the U.S. has over Mexico, U.S. farmers can produce seven times as much as the Mexican sector, with only 2 million people. In Mexico, an estimated 8.6 million people live off the land. Most blame Mexico's lack of advancement in technology as its impediment to competing on a level playing field with the U.S.

Still, there are those who point out that Mexico's land reforms of the 1930s are a big part of the problem. Reforms limited the amount of land one farmer can have to 100 hectares and in most cases less, which has not contributed to efficiency in the agriculture sector—at least in terms of tons of food produced per hectare and per man-hour. Decades of neglect by the nation's leaders has also kept Mexico's farming methods antiquated.

According to Mexico's National Confederation of Farmers (CNC), during the first eight years of NAFTA, that nation has imported $78 billion in products that it could have produced itself, and is running a trade deficit. The CNC also says that 600,000 jobs have been lost in the sector during that same time period.

But Fox, in his leadership role, said it makes no sense to extend the tariffs.

"To get ourselves into a fight that will cost us a lot in exchange for very little. The solution is in being competitive and productive," he said.

Nevertheless, he warned that illegal immigration to the United States may increase as a result of the Jan. 1 change.

By Jan. 1, 2008 virtually all tariffs will be eliminated between the U.S. and Mexico.