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North American Trade Disputes: A Mexican Perspective

North American Trade Disputes: A Mexican Perspective. North American Trade Disputes: A Mexican Perspective. Sources of trade irritants Underlying cause of trade disputes What’s wrong with a little dispute Conclusions. Sources of Trade Disputes. Trans-border power Political sensitivity

Solomon
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North American Trade Disputes: A Mexican Perspective

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  1. North American Trade Disputes:A Mexican Perspective

  2. North American Trade Disputes:A Mexican Perspective • Sources of trade irritants • Underlying cause of trade disputes • What’s wrong with a little dispute • Conclusions

  3. Sources of Trade Disputes • Trans-border power • Political sensitivity • growing democracy • Differential policy mechanisms • Relative price differentials • Rapid structural change -- technology innovation • Foreign investment -- lack thereof

  4. Size of markete * Concentration ratioe *imports / domestic production *import share = TBPR Size of marketi * Concentration ratioi Trans border power ratio • Size of market • Concentration ratio • Import market share

  5. Trans border power ratio and trade conflicts Beef Probability of trade disputes Poultry Trans border power ratio

  6. Trans border power ratio and political sensibility:Probability of disputes as trade grows Trans border power ratio Medium probability High Trade disputes Trucking HFCS Hogs High probability Nobody cares Avocados Low Low High Political sensibility

  7. Differential policy mechanisms • Policy vision • Support mechanisms • Subsidies

  8. USDA organizational chart: Areas where the then SAGAR was not involved or not overly active

  9. SAGAR US$ 16 200 million US$1 474.3 th. 2). - Support to farmers Procampo :$1 090.7 mill and for export marketing Mkt. Supt .$ 366.9 mill Aserca Adm:$0.2414 mill A.CampoExp$ 16.5 mill US$ 778.8 th. US$ 2 200 million Alianza Ag: $ 321.8 4). - Rural Develop Alianza Liv: $ 155.9 Alianza RD: $301.1 US$ 67.2 th. US$ 750 million 6). - Ag health (sanitary) Alianza Ag. health:$ 67.2 mill Including storage US$150 million $0.00 Food safety 7). - Comparative budgetary expenditures USDA Source: Consjeo Nacional Agropecuario 11

  10. USDA Other Gov. agencies US$ 5 503.2 th (not operated by SAGAR) US$ 36 100 million Anti proverty program Social and food programs, including nutrition 1). - Capital Hum.:$ 2 695.1 mil (Progresa) Opciones Ingr:$ 906.3 mil (Pet,Fonaes) Capital físico:$ 1 901.8 mil (State local gov) US$ 4 700 million US$ 82.4 th 3). - Natural resources Water commission: $ 82.4 mil US$ 2 100 million US$ 205.4 th Education and research including economic research 5). - Inifap: $ 67.3 mil UACh: $ 69.8 mil UAAANarro$ 32.0 mil Col.Postgr: $ 30.0 mil CEASAGAR:$ 6.3 mil TOTAL MÉXICO: $ 8 509.6 million TOTAL US: $ 62 200 million 12 Apoyos en otros países Comparative budgetary expenditures Source: Consjeo Nacional Agropecuario

  11. Agricultural development budget(Billion of 1994 pesos) Source: Various presidential informes; Banco de Mexico. !980 - 1994 refers to rural development

  12. Agricultural development budget as a percentage of the total programmed budget Source: Various presidential informes; Banco de Mexico. !980 - 1994 refers to rural development

  13. Subsidy Levels in NAFTA Countries U.S. Dollars per hectare U.S. Dollars per full-time farmer Source: Consjeo Nacional Agropecuario

  14. Government export support

  15. You talk the talk, butyou don’t walk the walk The Mexican view on their NAFTA partners agricultural policies

  16. Apoyos en otros países Canada Comparative subsidy levels among NAFTA partners (PSE’s) Mexico United States 15

  17. Relative price differentials • Undermines local markets • Opportunities for dumping • Strengthens exporter balance sheet

  18. Imports Domestic 30% 83% 70% Popular Cuts High end cuts Mid-range Cuts Mex 1.60 1.20 Wholesale price us$ / Lb 3.00 4.00 USA 1.50 1.00 Source: AMEG Mexican Beef Market

  19. Price structure: Hogs and Pork in the U.S. and Mexico Source: Enrique Dominguez, WSJ, ASERCA, CMP elaboration

  20. Structural and technological change • Tomatoes - extended shelf life • U.S. beef market • Change in Mexican trade profile

  21. U.S. beef market Fuente: NCBA

  22. U.S. Beef Trade Balance(million dollars) * * Beef and variety meats Fuente: NCBA

  23. Food and agriculture imports(Million dollars)

  24. Food and agriculture imports

  25. Food and agriculture exports(Million dollars)

  26. Food and agriculture exports

  27. Foreign Investment • Stimulates trade • Creates interdependency • But can create competitive pressure

  28. Foreign Investment in Mexican food and agriculture(number of firms) Food Manufacturing Source: Secretaría de Economía

  29. Foreign Investment in Mexican Food and Agriculture by Country of Origin Agriculture Food

  30. So what’s wrong with trade disputes? • When there is no trade there are no disputes • Keeps lawyers and economists busy • Absence of disputes could indicate collusion • Are consumers better off? • Are farmers better off? • Tomato case • U.S. and Mexican growers agreed to essentially a price floor in 1996, ending a trade dispute

  31. U.S. imports of Mexican tomatoes(‘000 tons) Source: Bancomext, based on U.S. Department of Commerce data

  32. Prices per kilo of imported tomatoes in the U.S. market Source: Bancomext, based on U.S. Department of Commerce data

  33. Mexico’s share of the U.S. winter tomato market(% volume) Source: Bancomext, based on U.S. Department of Commerce data

  34. Conclusions • An ad hoc-type dispute resolution mechanism is needed

  35. Legal time frame for an trade caseLive hogs Heads PROVISIONAL RESOLUTION Feb 99 DEFINITIVE RESOLUTIONOct 99 INVESTIGATION REQUESTJun 98 480 DAYS INVESTIGATIONOct’97-Mar’98 Source: USDA, Enrique Dominguez

  36. Conclusions • An ad hoc-type dispute resolution mechanism is needed • Need to incorporate more Mexican academics • Need to bring together private sector actors Nevertheless • Probability for more trade conflicts in the near future

  37. 1994 NAFTA 2000 EUFTA 1992 Chile 1995 Bolivia, Costa Rica, Colombia y Venezuela 1998 Nicaragua Mexico’s aggressive trade stance

  38. Conclusions • An ad hoc-type dispute resolution mechanism is needed • Need to incorporate more Mexican academics • Need to bring together private sector actors Nevertheless • Probability for more trade conflicts in the near future • Mexico’s aggressive trade stance • Adjustment of domestic agricultural policy

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