The NAFTA Commission, the trade ministers of the U.S., Canada and Mexico, met in Vancouver, B.C., Canada on August 13-14. With serious trade disagreements like U.S. government domestic policy for corn production, the movement of softwood lumber from Canada to the U.S. and Mexican trucks operating in the U.S., they could have gotten lost in those details. There probably was considerable behind the scene’s discussion about those issues, but the joint statement after the meeting showed that the trade ministers focused on future opportunities rather than disagreements of the present.
The key point of the four page statement was laid out in the fourth paragraph, “We must build upon our initial success, and continue to strengthen our regional competitiveness with a view not only of intra-NAFTA trade, but considering other regions as potential destinations for our exports and an important source of imports.” In the following paragraphs references are made to “a strong and competitive North American platform” and facilitating trade in specific industries “in order to foster stronger, more competitive North American value chains.” They identified four industries to give additional attention: swine, steel, consumer electronics and chemicals.
NAFTA has already accomplished its first mission of reducing trade barriers to increase trade among the three countries. Canada was the number one export market for goods from the U.S. in 2006 at $230.7 billion and the number one importer to the U.S. at $302.4 billion. Some would criticize the trade deficit of $71.8 billion, but that is small considering that the U.S. has ten times as many people as Canada. Mexico was the number two export market for goods from the U.S. at $134.0 billion and the number three importer to the U.S. at $198.3 billion. The U.S. trade deficit with Mexico was $64.3 billion. Our two NAFTA partners accounted for 35.6 percent of U.S. exports, 26.9 percent of imports and 16.2 percent of the U.S. trade deficit.
The numbers are equally strong for agricultural trade. Canada was the number one export market for U.S. products in 2006 at $12.0 billion, 16.8 percent of U.S. agricultural exports, and the number one importer into the U.S. at $13.4 billion, 20.6 percent of agricultural imports. Mexico was the number two market for U.S. agricultural exports at $10.9 billion, 15.2 percent of exports and the number two importer of agricultural products into the U.S. at $9.4 billion, 14.4 percent of imports. The two countries together had $22.9 billion of agricultural exports from the U.S., 32.1 percent of U.S. exports, and $22.8 billion of imports into the U.S., 35.0 percent of imports.
That does not mean that every industry in all three countries participated equally in increased trade. Integrating supply chains across the three countries means that each country has become more specialized where they have the greatest comparative advantage and achieved the economic benefits of more efficient supply chains. The goal now is to allow these value chains to be further strengthened to better compete with the rest of the world.
The Commission has agreed to “conduct an analysis of the free trade agreements that each country has negotiated subsequent to the NAFTA, beginning with those in the western hemisphere. This work will focus on identifying specific, meaningful differences between agreements, especially those related to trade facilitation and transparency.” The Commission recognizes that an individual Free Trade Agreement (FTA) is part of a large market opening process that has two parts: reductions in tariffs and other import restraints and changing trading procedures and creating transparency that eases the physical flow of trade across boarders. Establishing low tariff rates is a waste of time if non-tariff issues continue to restrict trade flows.
The importance of agricultural trade can be seen in the decision to have swine as one of the first four industries to be given additional attention. The NAFTA Ministers’ agenda for the swine industry “includes developing coordinated approaches to standards, regulations and performance objectives, preventing border delays and sharing research.” They also agreed to explore “a predictable, coordinated response within North America in the event of an outbreak of swine-related diseases.” That means a lesson was learned from the BSE outbreak in cattle.
The swine industry in North America is already highly integrated according to an analysis “NAFTA at 13: Implementation Nears Completion” by Steven Zanhiser of the Economic Research Service of USDA. Canadian hogs now account for 8 percent of the hogs slaughtered in the U.S. compared to 1 percent before the Canadian-U.S. Free Trade Agreement began in 1989. Mexican pork imports accounted for 28 percent of Mexican pork consumption in 2006, compared to 6 percent in 1996, even though pork production in Mexico has increased by 30 percent since the start of NAFTA. The rise in imports did lead to charges from Mexican producers of dumping by the U.S. Mexico is already an important supplier of pork to Japan.
If industries like swine, steel, consumer electronics and chemicals allow market forces to create more competitive North American value chains, they will be better prepared to meet the competition in other markets. Workers and consumers in the U.S., Canada and Mexico will all benefit from the increased economic efficiencies and job growth that will result.
The statement from Vancouver has received little attention by the U.S. media. The Presidents of the U.S. and Mexico and the Prime Minister of Canada will be meeting at the North American Leaders Summit on August 20-21 in Montebello, Quebec, Canada. That will be an excellent opportunity for the three leaders to publicly reinforce the Vancouver statement.