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NAFTA and the Saga of the Corn

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  1. NAFTA and the Saga of the Corn Joe Sun Chee Qiujia Chen Angela Dixon

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

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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%

  9. Corn in Mexico Society • Accounts for 60% of cultivated land • Employs 3 millions farmers (8% Mexico’s 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 Mexico’s 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

  10. NAFTA’s 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

  11. NAFTA’s 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

  12. NAFTA’s 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

  13. NAFTA’s Key Strategic Objectives and Its Actual Impacts • Fifteen-year transition period for alignment of domestic prices with international prices • Transition period truncated

  14. NAFTA’s 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%

  15. 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

  16. 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

  17. 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

  18. 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 Post Corn Tariffs- effects

  19. 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 Post Corn Tariffs- effects

  20. 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

  21. Q & A • Questions ?