North American Free Trade Agreement benefits U.S. agriculture - trade with Mexico

The North American Free Trade Agreement (NAFTA) will eliminate most barriers to trade and investment within North America and create the largest free trade zone worldwide.

U.S. agriculture will benefit from greater trade, higher agricultural export prices and increased efficiency and productivity.

Under the agreement, all nontariff measures affecting agricultural trade between the United States and Mexico were eliminated by conversion to either tariff-rate quotas or ordinary tariffs. This included Mexico's import licensing system, the single greatest barrier to U.S. agricultural sales in that market.

All agricultural tariffs between the United States and Mexico are being eliminated -- many immediately and others over transition periods of 5, 10 or 15 years. The immediate tariff eliminations apply to a broad range of agricultural products. This will have a positive impact upon U.S.-Mexican trade, where more than half the value of agricultural trade became duty free as the agreement went into effect in January 1994.

The United States and Mexico protected their import-sensitive sectors with longer transition periods, tariff-rate quotas and -- for certain products -- special safeguard provisions. Canada and Mexico agreed to exempt dairy, poultry and sugar from NAFTA requirements. However, after the 15-year transition period, free trade will prevail for all agricultural products traded between the United States and Mexico. NAFTA also provides for tough rules of origin to ensure that maximum benefits accrue to items produced in North America.

Trade Gain Foreseen With Mexico

Mexico imported mostly bulk agricultural products, such as coarse grains and soybeans, prior to 1987. But Mexico is now one of the largest and fastest growing markets for U.S. high-value products. These products, including intermediate and consumer-oriented items, now account for 65 percent of all U.S. agricultural sales to Mexico, up from 40 percent in 1987. Consumer-oriented food products have gained the most; red meats and poultry, horticultural products, dairy products and snack foods are among the leaders. Other high-value products doing well include live animals, cattle hides, feeds and fodders and soybean meal.

At the end of the 15-year transition period, U.S. agricultural exports will likely be about $2.6 billion higher than they would have been without NAFTA. Over the same period, U.S. farm cash receipts likely will increase by about 3 percent compared with receipts without a NAFTA.

Greater trade will also expand U.S. employment in processing and transportation. Agricultural exports to Mexico already support 100,000 U.S. jobs in agriculture, food processing, transportation, packaging and the economy at large.

The agreement will add as many as 56,000 more jobs -- 50 percent more. It is expected to provide particular impetus to the economies of Texas, Arizona and other southwestern states.

Mexico's main exports to the United States are feeder steers and tropical and horticultural crops, such as green coffee and selected fruits and vegetables. These exports also will likely expand with the agreement.

Grains, Meats, Horticultural Exports Will Rise

Grains and meats are expected to account for the majority of the expanded value of U.S. agricultural trade. NAFTA provides for 2.5 million metric tons of corn exports duty free. This duty-free quota will grow by 3 percent a year over the 15-year transition period. U.S. sorghum exports (about 4 million tons in fiscal 1993) will increase due to the immediate elimination of the sorghum tariff. U.S. wheat exports also would increase with elimination of tariffs and licensing and the expected higher Mexican incomes.

NAFTA's tariff elimination will further boost growth of U.S. exports of beef, pork, variety meats and sausages to Mexico. U.S. poultry exports, already up sharply in recent years, will likewise grow with Mexico's removal of import licensing requirements and expanding demand.

NAFTA will create new market opportunities for U.S. horticultural products as a result of lower trade barriers and income growth in Mexico. The most significant gainers will include fresh apples, table grapes, pears, peaches and fresh vegetables, especially during Mexico's off-season. U.S. tree nut exports to Mexico, which have doubled in recent years, will continue to expand because tariffs have been dropped to zero. U.S. horticultural imports from Mexico are seasonal and generally enter the United States during the winter. Under NAFTA, tariffs on selected horticultural commodities during the U.S. off-season were eliminated immediately, while other tariffs will be phased out gradually. The longer phaseout periods apply to tariffs during seasons when Mexican importers compete more directly with production in the United States. The agreement also includes quantity-based safeguards to protect U.S. producers of import-sensitive fruits and vegetables from import surges.

Protection for Import-Sensitive Crops

In addition to a transition period of up to 15 years, NAFTA has special safeguards to protect import-sensitive crops. For example, NAFTA liberalizes trade with Mexico in all products, including those farm products protected by import quotas under Section 22 of the U.S. Agricultural Adjustment Act of 1933. However, imports from non-NAFTA countries are still limited by quotas.

Initially, Mexico has a small duty-free quota for Section 22 products in the U.S. market. Mexican exporters are charged a relatively large tariff for any sales over that amount. The duty-free quota grows at a 3-percent compounded annual rate over the NAFTA transition period, while the over-quota tariff is gradually phased out.

NAFTA side agreements contain special provisions for two particularly import-sensitive products -- sugar and frozen concentrated orange juice (FCOJ).

NAFTA also contains a special agricultural safeguard provision to provide timely, effective relief against surges in imports from Mexico. These provisions allow only a specified quantity of a product to enter at low or preferential NAFTA duty rates, and higher tariffs are automatically triggered when imports reach a specified level.

The United States will apply the special safeguard on imports of seven horticultural items, including tomatoes. These items accounted for about $340 million in imports from Mexico in 1991, or about 15 percent of U.S. agricultural imports. Mexico will have a special safeguard against import surges in live swine and most pork products, apples and potato products.

COPYRIGHT 1994 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group