The pros and cons of NAFTA
March 01, 2008
by Meyer Sosland
"We cannot stop global change. We cannot repeal the international economic competition that is everywhere. We can only harness the energy to our benefit. Now we must recognize that the only way for a wealthy nation to grow richer is to export, to simply find new customers for the products and services it makes. That, my fellow Americans, is the decision the Congress made when they voted to ratify NAFTA."
— U.S. President Bill Clinton, Dec. 8, 1993
On Jan. 1 of this year, the North American Free Trade Agreement (NAFTA), implemented on Jan. 1, 1994, reached a milestone. All of the agreement’s provisions that pushed three neighboring countries — Canada, the United States (U.S.) and Mexico — to liberalize trade, including agricultural trade, had been implemented.
When the agreement was signed in December 1992 by Canadian Prime Minister Brian Mulroney, U.S. President George H.W. Bush and Mexican president Carlos Salinas de Gortari, it created the world’s largest free trade zone and pledged the three participants to a simple list of objectives:
• eliminate barriers to trade in, and facilitate the crossborder movement of goods and services between the territories of the parties;
• promote conditions of fair competition in the free trade area;
• increase substantially investment opportunities in the territories of the parties;
• provide adequate and effective protection and enforcement of intellectual property rights in each party’s territory;
• create effective procedures for the implementation and application of this agreement, for its joint administration and for the resolution of disputes;
• establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this agreement.
Unquestionably, NAFTA was an ambitious experiment in free trade. But the question is: How has it worked for North American grain producers?
Steven Zahniser of the U.S. Department of Agriculture’s Economic Research Service feels NAFTA has been a success and told World Grain: "Agricultural trade among the three NAFTA partners has grown a great deal since NAFTA and its predecessor agreement, the Canada-U.S. Free trade agreement (CUSTA) were signed."
In the broadest sense, NAFTA did meet its objectives and did eliminate barriers to trade between the U.S., Canada and Mexico. According to the Office of the U.S. Trade Representative, Canada and Mexico alone have accounted for 50% of the increase in U.S. agricultural exports since 1993. For Mexico, agricultural exports to the U.S. grew by $6.7 billion while imports from the U.S. increased by $7.3 billion during the 13-year period following the implementation of NAFTA.
What these numbers do not — and cannot — show is how much trade would have increased without a free trade agreement.
UNITED STATES Clearly, the U.S. has been the largest beneficiary of NAFTA. While the value of U.S. agricultural exports worldwide climbed 65% from 1992 to 2007, farm and food exports to its two NAFTA partners grew by 156%.
U.S. farm and food exports to Mexico hit roughly $11.5 billion in 2007 — the highest level ever under NAFTA. This was in sharp contrast to the years immediately prior to the signing of NAFTA, when U.S. agricultural products lost market share to competitors in the Mexican market.
Also, NAFTA was instrumental in keeping Mexican markets open to U.S. farm and food products in 1995, when the country was hit by the worst economic crisis in its history. To its credit, rather than increasing import barriers in response to the devaluation of the peso, the Mexican government stuck to the commitments it had made as part of the free trade deal, thereby cushioning the economic slump and speeding up the recovery process, mainly due to its preferential access to U.S. commodities and products.
Under NAFTA, U.S. agricultural trade to Mexico and Canada combined grew from $7.3 billion in 1994 to $20.1 billion in 2006. Agricultural trade with Canada hit $11.9 billion in 2006 compared to only $4.2 billion in 1990, the lion’s share of this being fruits, vegetables and snack foods.
CANADA In a Feb. 8, 2007 presentation in Puerto Vallarta, Cherilyn Jolly-Nagel, president of the Western Canadian Wheat Growers, told delegates there had been significant growth in twoway trade between Canada and the U.S. since NAFTA. In particular, there had been "huge increases" in Canadian exports of mixes, dough, cereals and bakery goods. "It would seem that Canada now has a comparative advantage in this type of food processing," she said.
Jolly-Nagel also attributed the growth in exports of canola oil and meal as well as oats and malting barley to NAFTA. She said the agreement led to an increase in imports of U.S. maize (corn), soybeans and animal feed, much of this due to increased Canadian hog production.
"With the exception of wheat, and sometimes corn, most of this trade occurred without any significant degree of trade friction," she said.
However, there were several trade disputes. One was the ongoing battle between Canada’s single-desk selling agency, the Canadian Wheat Board (CWB), and North Dakota wheat growers, a battle that at times became nasty. For example, Allan Skogen, then-president of the North Dakota Grain Growers Association, told a World Trade Organization (WTO) Listening Session in 1999 that North Dakota farmers see Canada as a competitor, not a trading partner. "We can no longer be used as a sacrificial lamb in the name of trade balance between our countries," Skogen said.
The cross-border spat saw at least 14 trade challenges launched at an estimated cost of roughly $15 million to grain farmers on both sides of the border.
Another trade dispute, while not directly related to grain, was the closure of the U.S. border in 2003 following a BSE outbreak that blocked live cattle from entering the U.S. for two years, sent barley markets north of the border into a tailspin and cost Canada’s beef industry an estimated C$7 billion.
While several studies indicated it was safe to let live cattle cross the border, access by Canadian cattlemen to their biggest market remained closed. As late as March 2007, Canadians were still arguing in a U.S. Court of Appeals that efforts by the Ranchers Cattlemen Action Legal Fund to keep Canadian cattle out of the U.S. were unfounded and that the opening of the border in July 2005 had not, in fact, affected either the U.S. export market, consumer confidence or the price of beef. "If anything, the U.S. benefited from the border reopening as a result of the positive impact on the cattle industry," the Canadian Cattlemen’s Association said in its brief.
In addition to these complaints, Canada is also concerned about the U.S. Farm Bill and views it as an agricultural incentive that masks market signals in the U.S. and encourages farmers to overproduce.
Michael O’Shaughnessy, spokesperson for Canada’s foreign affairs and international trade department, maintains that the U.S. has breached its commitments under NAFTA by providing trade-distorting financial support to producers. Canada, he said, has worked to level the playing field for its farmers, who have to compete against massive trade-distorting subsidies to this kind.
Another problem that has kept Canadian grain farmers from taking full advantage of NAFTA is the inadequate number of railway cars allocated for grain shipments to Mexico. Mark Dyck, manager of logistics for the CWB, told World Grain: "If there had of been more cars available to go to Mexico this year, we would have sold more to Mexico.
Dyck said the CWB is "interested in doing more rail to Mexico than what they are presently offering."
He said one of the problems in shipping grain to Mexico is the length of time it takes before grain cars are returned to the originating Canadian railway after being handed off to a Mexican rail line. "That’s a legitimate concern," Dyck said.
MEXICO The three signatories of NAFTA were often referred to as "The Three Amigos," with Mexico easily the most diminutive of the trio.
In fact, for the U.S.’s southern neighbor, NAFTA proved to be more than a simple trade agreement; it eventually became an agricultural revolution. When President Salinas signed the trade pact, he opened the flood gates to massive change similar to what had taken place in the U.S. and Canada over generations: large farms buying out small farms, the move to larger equipment and increased mechanization, the disappearance of mixed farms and the increased reliance on a few multinational grain companies.
With NAFTA, the state regulatory systems that had long supported Mexico’s subsistence farmers disappeared.
According to the Washington, D.C., U.S.-based Center for International Policy, the population working in Mexico’s primary sector, including agriculture, plunged from 8.2 million in 1991 to 6.1 million in 2006. Also, as the state institutions that supported farmers, such as corn growers, were dismantled, the National Company of Popular Subsistence (CONASUPO) system that served as the supplier of precooked grain for tortillas to the mills was also eliminated. What followed was an increase of between 42% and 67% in the price of tortillas in 2007. Several events have been blamed for this, including a sharp rise in maize prices on international markets.
While Mexico’s agricultural exports to the U.S. and Canada have tripled since the implementation of NAFTA, Mexico’s subsistence farmers, left without the level of government support they had become used to, now view NAFTA as a bad deal and are asking the government to renegotiate it. WG
Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.