Congressman John Salazar is a rancher and potato grower from southern Colorado and represents the San Luis Valley that produces about 95 percent of Colorado’s potatoes. The valley is also the closest major U.S. fresh market potato growing region to Mexico and would likely directly benefit from opening the market. The Colorado Potato Administrative Committee estimates that 1,200 truckloads of potatoes moved from Colorado to Mexico in 2009, about 3 percent of the 40,000 loads shipped from Colorado that year and accounted for about half of the fresh market potatoes shipped to Mexico valued at $24 million. The U.S. industry believes the market could easily grow to $150 million within five years as Mexican consumers become familiar with U.S. potatoes and benefit from lower retail prices.
In March of 2003, almost ten years after NAFTA was implemented, the Mexican government agreed to a fresh market access protocol. Opened immediately was a 16-mile wide area along the U.S. border in five northern states. The protocol called for Mexico to open the remainder of the country to U.S. potatoes by 2005, but it never happened. Mexico insists restrictions are related to concerns about potato pests that could come from U.S. potatoes, but U.S. producers believe that protecting the domestic potato market for Mexican growers and extracting higher prices from consumers are the real purposes. All U.S. potatoes are for the commercial market, not for seed, and are washed, free of soil and sprout inhibited.
The partial market opening has led to increased sales of U.S. fresh market potatoes along the border. For calendar years 2001-2003 exports to Mexico averaged 16,200 metric tons valued at $5.8 million. For 2007-2009 exports averaged 59,000 metric tons valued at $29.0 million. With high Mexican retail potato prices it is reasonable to expect that imports would grow with country-wide access.
U.S. producers are concerned about the Mexican market because the U.S. fall 2009 potato crop, fresh and processing, according to USDA was 4 percent higher than a year earlier. Supplies are currently up 11 percent from a year earlier, and market prices to producers for fresh market potatoes were about half year earlier levels for September 2009 to March 2010. Movements of table potatoes, including exports, were up 5 percent in September-March, but 1 percent below the five year average.
The difference in market conditions is a textbook example of the benefits of two-way trade. Mexican consumers can benefit from lower prices while U.S. producers can move extra supplies. Distributors and retailers in Mexico are generally supportive of increased access to fresh potatoes from the U.S. because they understand the need to have a supply of high quality product at reasonable prices to build long-term markets. Mexican potato processors also depend on fresh market supplies from the U.S.
There is nothing particularly unique about the potato issue. Trade agreements are signed and implementation begins. A sanitary or phyto-sanitary issue, real or imagined, develops and the process slows down. Promises are made to resolve the issue, but it never quite gets done as has happened with the NAFTA requirement for the U.S. to allow Mexican trucks to operate in the U.S. One side pushes the issue quietly and then publicly, with a threat of trade restrictions to add emphasize. Consumers and producers on both sides suffer loses as protectionist groups work the process. At times, as in the Mexican trucking case, other producers and consumers suffer collateral damage as one side imposes tariffs and other trade restrictions to get the other side to honor its commitments. This becomes a negative sum game as both sides end up economically worse off.
President Calderon assured Congressman Salazar that he would personally take a look at the issue. Perhaps the Obama Administration should make it a standard practice that when the head of a government comes to the U.S. on an official visit that an hour or two is reserved specifically to hear requests on trade disputes. Of course President Obama would need to reciprocate on his foreign visits.
Repeated attempts have been made under NAFTA and other trading relationships to develop a system for working through trade issues. The U.S., Mexico and Canada created the Security and Prosperity Partnership of North America as part of a “NAFTA plus” agenda in 2005 to improve relations among the three countries. In 2007 the U.S. and EU created the Transatlantic Economic Council to remove barriers to transatlantic commerce.
Sanitary and phyto-sanitary issues are among the toughest issues. NAFTA recognizes that member countries have the right to protect human, animal, or plant life and health as long as actions are based on scientific principles, NAFTA partners are treated equally, and regulations are not simply barriers to trade. International standards are increasingly used to avoid national regulations with substantially different interpretations of the same scientific facts. Regulatory coordination among the three countries is a key to working out these issues. In November 2007 the U.S. and Canada established a Technical Arrangement Regarding Trade in Potatoes that is being phased in over a 3-year period. It includes provisions for mutual recognition of quality grade standards for imported potatoes.
These issues are ultimately political issues to be resolved by politicians. Technical committee meetings are important to get the science right and understand the likely market responses to changes in trade requirements, but technical meetings are also a great way to ensure that nothing ever gets done. Politicians have to be pressured to work to the benefit of consumers and producers.