The Economic Research Service of USDA has released NAFTA at 13, the fifth biannual report mandated by Congress on the effects on U.S. agriculture of NAFTA implementation. Most of the agricultural trade among the U.S., Canada and Mexico is already free of tariffs and quotas. The final provisions of NAFTA will be implemented on January 1, 2008.
Tariff rate quotas (TRQs) and tariffs established in NAFTA will be removed for U.S. trade with Mexico for nonfat dried milk, dry edible common beans and corn. A TRQ for chicken leg quarters established in 2003 will also end. The July 2006 agreement on two-way trade in sugar and high fructose corn syrup (HFCS) will end on January 1 for sugar and April 1 for HFCS. Small seasonal tariffs on Mexican shipments to the U.S. of sprouting broccoli, cucumbers, asparagus, cantaloupe, other melons and orange juice will end January 1.
The Canada-U.S. Free Trade Agreement (CUSTA) restricts Canadian imports from the U.S. for dairy products, poultry, eggs and margarine, and there are no provisions to revisit those products in 2008 or any other time. U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, sugar, and sugar-containing products are also restricted. NAFTA also limits dairy and poultry trade between Canada and Mexico.
The natural competitive advantage for the U.S. in livestock feeds led to a seven fold increase in corn and cracked corn shipments to Mexico from 1991-93 to 2003-05 to over 300 million bushels per year, and soybeans, meal and oil had a three fold increase to over 4.3 million metric tons per year. Sorghum averaged 40 million bushels per year less in exports to Mexico at 115 million bushels per year for 2003-05. Over that same time period of 1991-93 to 2003-05 the dollar value of livestock, poultry and animal product exports to Mexico doubled to $2.5 billion per year. With the elimination in 1995 of transportation subsidies for western Canada grain, shipments to the U.S. of slaughter hogs increased from 1 percent of U.S. hog slaughter in 1989 to 8 percent in 2006.
Mexico’s comparative advantage in winter-time production of fruits and vegetables has led to a two fold increase in the value of shipments to the U.S. from 1991-93 to 2003-05 to an average of $3.8 billion per year. Canada has developed a greenhouse fresh vegetable industry that helped to increase exports of vegetables to the U.S. to an average of $1.8 billion for 2003-05, but the U.S. still exported $2.0 billion per year to Canada.
According to the report, in 2005 total U.S. direct investments in the Canadian and Mexican processed food industries were $3.4 billion and $2.9 billion, respectively. Total direct investments in the U.S. processed food industry was about $1.6 billion for Canada and $1.0 billion for Mexico. In 2003, Canadian and Mexican majority owned affiliates of U.S. multinational food companies had sales of $14.1 billion and $6.1 billion, respectively, more than twice the size of U.S. processed food exports to Canada and Mexico.
The report asks a logical question, “What comes after NAFTA?” NAFTA does not have a supranational authority to encourage further economic integration. Changes will come within the context of each country’s national sovereignty. In March 2005, the three governments signed the Security and Prosperity Partnership of North America (SPP) for cooperation to make businesses more competitive and economies more resilient. The ten working groups formed under the SPP’s includes one on food and agriculture.
The three countries have individually completed free trade agreements with other countries in the Americas that extends NAFTA’s influence. Each country has a free-trade agreement with Chile and at least one free-trade agreement with countries in Central America.
The authors suggest three public policy areas where increased efforts could increase market integration within North America: regulatory coordination, trade remedies, and farm labor. Regulations today can be greater impediments to trade than tariffs and import quotes were 20 years ago. The challenges associated with BSE in beef and food safety issues in fresh fruits and vegetables are examples of the needed work on regulatory coordination. The SPP Food and Agriculture Working Group is committed to resolving regulatory issues.
Less attention has been given to antidumping duties (AD) and countervailing duties (CVD) under each country’s trade laws. Economic integration under a free trade agreement calls for a different approach than with a country like Russia with no trade agreement. With the natural volatility of commodity prices, antidumping cases can be a great hindrance to economic integration. The Canada-Chile Free Trade Agreement exempts all of their bilateral trade from ADs. Other options include time-limited and renewable “holidays” from ADs for specific products, higher standards for imposing ADs and CVDs, and mandatory dialogue before administrative review of AD/CVD cases.
Labor and immigration need to be addressed, but are beyond what can be considered in a discussion about NAFTA. The obvious point is that market integration under NAFTA cannot be separated from labor force issues.
NAFTA is still a work-in-progress. Its economic successes for producers and consumers have led to opportunities for additional public policy changes. Traditional regulatory and trade policies are not well suited for the degree of economic integration achieved under NAFTA. These next policy steps should continue to build on the national sovereignty base set out in NAFTA.