Mexico, NAFTA, and Agriculture A Recap of Recent Events

1
Mexico, NAFTA, and Agriculture A Recap of Recent
Events

• Prepared by the Office of Agricultural Affairs
• March 2004

2
Mexican Demographics Affect U.S. Agricultural
Exports

• Population of over 100 million
  
• 50 of population under 25
• 79 urban
• GDP per capita 6,884
• Income distribution
• Wealthy 5
• Middle 55
• Lower 40
• 12 arable land, of which 2.6 is irrigated

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• Key Economic Indicators
• ( billion)

Calendar Year 1998 1999 2000 2001 2002 2003
Population (millions) 96.3 98.2 99.6 101.2 102.4 103.6
GDP/Capita, Current USD 4,432 4,992 5,949 6,296 6,884 N.A.
Real GDP Growth 4.8 3.4 6.8 -0.2 0.9 1.3
Consumer Price Index 18.6 12.3 9.0 4.4 5.7 3.98
Unemployment 2.6 2.0 1.9 2.5 2.1 3.0
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Mexicos Agricultural Challenges

• Half of producers grow crops on farms of five
  hectares or less.
• Nearly 80 percent of Mexicos farmers produce
  cereals and legumes, the least profitable crops.
• There are an estimated 25 million rural poor.
• One agricultural leader says that 15 percent of
  Mexicos farms are world-class, 35 percent could
  be, and 50 percent will never be.
• Rural development policies have not sufficiently
  focused on creating off-farm opportunities.

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More Challenges

• Many of Mexicos agricultural producers are tied
  to a communal land system that prevents farmers
  from holding title to their land.
• In real terms, agricultural lending dropped 77
  percent between 1994 and 2001.
• In real terms, agricultural spending dropped 50
  percent between 1994 and 2001.

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Fuel for the Political Fire

• After the current U.S. Farm Bill was announced,
  many in Mexico asked how Mexicos small
  agricultural producers could be expected to
  compete with their neighbors to the north.
• Especially when the NAFTA eliminated all
  remaining agricultural tariffs and tariff-rate
  quotas on January 1, 2003, except for
  restrictions on corn, dry beans, and powdered
  milk which will be in place through 2008.

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Both Issues, But Particularly the NAFTA, Were
Seized by Opposition Political Parties

• Opposition political parties seeking to
  strengthen their Congressional representation
  during 2003 mid-term elections used the crisis
  in the countryside as a way of energizing
  longstanding political relationships with rural
  farm groups.
• The public debate was spirited and long. Many in
  Mexico seemed convinced that the NAFTA and U.S.
  Farm Bill were responsible for the poverty and
  lack of opportunity in Mexicos rural areas.

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The Fox Administration Takes Key Steps to Aid
Mexican Agriculture

• In response to pressure from agricultural groups,
  the Fox Administration announces two key policy
  initiatives.
• The announcement of an Agricultural Armor
  program on November 18, 2002
• The signing of a National Agriculture Agreement
  on April 28, 2003

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Key Provisions of the National Agriculture
Agreement and Agriculture Armor Program

• Evaluate effects of NAFTA and U.S. Farm Bill.
• Seek consultations with the U.S. and Canada to
  change market access provisions for white corn
  and dry beans.
• Simplify Mexicos dumping procedures (WTO dispute
  panel requested)
• Mirroring of U.S. and Canadian technical
  requirements.
• Increase technical and social assistance.

10
The Political Pressure Manifested Itself in Less
Transparent Ways As Well

• Numerous and shifting technical requirements on
  U.S. poultry exports
• Antidumping and safeguard investigations against
  U.S. pork and beef
• Antidumping tariffs on U.S. apples
• Excessive inspection of U.S. fruits and
  vegetables
• Drug residues, heavy metal testing on meat
• Ill-conceived January 2003 ban on dry bean
  imports pushes agriculture relationship to its
  low point.

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High Level USDA, USTR, and FDA Policy Team Comes
to Mexico

• In April 2003, high level policy team comes to
  Mexico City in a last ditch effort to right the
  relationship.
• Since the meeting, Mexico has addressed a number
  of important trade issues.
• Antidumping tariffs on live hogs lifted.
• 5-year poultry safeguard agreement signed, which
  sets a tariff-rate quota on U.S. chicken leg
  exports and eliminates onerous Mexican technical
  requirements.
• Unreasonable phytosanitary requirements on dry
  beans lifted.
• California stone fruit protocol signed.
• Heavy metal testing on meat stopped and
  Salmonella testing proposal stalled

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Things Are Relatively Quiet for Now

• After the signing of the National Agriculture
  Agreement, Agriculture was not a major issue
  during the July 6 Lower Chamber elections.
• Anti-NAFTA representatives gained a significant
  number of seats.
• Recent budget does not contain big increases in
  agricultural spending and members of Congress
  could call for protectionist measures.
• Budget continues the 20 percent use tax on HFCS
  and a proposal to limit corn imports was
  overturned in the Senate.

13
Most People in Mexico Agree that That NAFTA Has
Been Good for Mexico

• 20 Percent of Mexicos GDP is attributable to
  NAFTA.
• Mexico has an overall trade surplus of 37
  billion with the United States.
• Mexicos exports have grown 152 percent since the
  inception of NAFTA compared to growth of 80
  percent following its GATT accession.
• Export jobs pay 37 percent more on average.

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Mexico Maintains an Overall Trade Surplus with
the United States
15
Certain Agriculture Sectors Have Benefited From
NAFTA

• Total U.S/Mexico agricultural trade has doubled
  to 15.3 billion in 2003.
• Mexico has maintained a consistent agricultural
  trade deficit of around 1.5 billion.
• Mexicos exports of horticultural products have
  increased 120 percent since the start of NAFTA.
• Production of major products has increased such
  as pork (up 24 percent), beef (up 13 percent),
  chicken (up 60 percent), sorghum (up 85 percent),
  fruit (up 27 percent), and vegetables (up 36
  percent)

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The United States Enjoys an Agricultural Trade
Surplus with Mexico
17
Mexicos NAFTA Experience Appears to Have
Affected WTO Trade Positions

• Mexican officials have expressed support for the
  U.S. position on eliminating export subsidies
• But, on the subjects of domestic support and
  market access has adopted a you get rid of your
  subsidies and open your markets, and well be
  happy to do the same position.

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Conclusions - Cautious

• New members of Congress could be unpredictable.
• Growing farmer group frustration over the
  implementation of Agriculture Agreement could
  spill over into trade issues, tempting the Fox
  Administration to implement politically popular
  anti-trade measures.
• There are still a large number of agricultural
  trade issues that need to be resolved.
• BSE, Avian Influenza
• Pork and beef dumping and safeguard
  investigations
• Proposal to detain two percent of all meat
  shipments
• Proposal to test raw meat for Salmonella
• Biotechnology
• Apple dumping

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• Conclusions Positive

• Sound macro-economic policies
• Better bank regulation
• Improved management of exchange rate
• Increased democracy
• Population growth

• Mexico's increased focus on exports
• Full implementation of NAFTA for most
  products, 2003
• Dynamic tourism, restaurant retail sectors
• U.S. competitive advantages

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Next Steps

• Rural development, USAID spending 10 million on
  rural development projects.
• Partnership for Prosperity.
• Harmonization of standards.
• Put January 1, 2008 on your calendars.