Transcript Kiwanis on NAFTA

NAFTA and the Small
Mexican Farmer
Daryll E. Ray
Director, Agricultural Policy Analysis Center
Melissa B. Cooney, Graduate Research Assistant
University of Tennessee
APAC
History of NAFTA
GATT – General Agreement on Tariffs and
Trade (1946)

Direct result of the 1930s and WWII
• Conflicts over trade seen as one cause of war
• International interdependence seen as inhibiting
war

APAC
Restructuring world economy based on
comparative advantage and free trade
• Tariffs detrimental to all parties
• Tariffs should be eliminated
History of NAFTA

1970s and 1980s
• Economic problems in the U.S.
• Stagflation

1980s to early 1990s
•
•
•
•

U.S. needed new markets to grow economy
Fall of Soviet Union
Mexico’s debt crisis and stagnant economy
Mexico joins GATT in 1986
January 1, 1994
• U.S.-Canada agreement expanded to include
Mexico - NAFTA
APAC
NAFTA’s Provisions for Free Trade

Objectives
• Eliminate barriers to trade
• Promote fair competition
• Increase investment opportunities
• Protect intellectual property rights
• Establish a framework for future
agreements
APAC
The Argument for NAFTA

Economic theory

Adjustment periods

Comparative advantages of U.S. & Mexico
• U.S. in grain production, animals and
animal products, and oilseeds
• Mexico in vegetables, fruits, fresh flowers,
and beverages
APAC
The Argument against NAFTA
Mexico’s “comparative advantage” is only
for very specialized products that are capital
intensive, few producers, and have higher
risk and costs
 Not self-sufficient
 Large, efficient agribusinesses with access
to technological advances benefit from
NAFTA
 Economic models do not account for social
welfare

APAC
NAFTA By the Numbers





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By the numbers, NAFTA is a success for Mexico
1994 – 2000: Total trade volume has increased from $297
billion to $676 billion
Mexico exported $154 billion to NAFTA partners in 2000
Growth in Mexico’s exports has contributed to more than
half of the real GDP growth in Mexico
Investment in Mexico has grown by 72%
2.7 million new jobs generated in Mexico
More than half of those new jobs were related to export
activity
Manufacturing exports pay nearly 40% more than other
manufacturing jobs
APAC
Source: NAFTA at Seven, 2001. Pettigrew, Zoellick, and Derbez
A Growing Dependency
Value (in billions of USD)
US-Mexico Agricultural trade
8
7
6
5
US Ag Exports
4
US Ag imports
3
2
1
0
1995 1996 1997 1998 1999 2000 2001
Source: Office of Trade and Analysis, US Department of Commerce
APAC
A Growing Dependency
US - Mexico Agricultural Balance of Trade
2.50
Value in Billions of USD
2.00
1.50
1.00
0.50
0.00
1995
1996
1997
1998
1999
2000
2001
-0.50
Source: Office of Trade and Analysis, US Department of Commerce
APAC
NAFTA and Agricultural Trade

Agricultural exports from Mexico to US totaled
~ $4.7 billion in 1998, up from a stagnant $2.5
billion prior to NAFTA.

Mexican agricultural exports have grown
about 11.5% per year.
Vegetables
~ 13% annual increase
Fruits
~ 17% annual increase
Beverages~ 28% annual increase
Source: US-Mexico Chamber of Commerce, 1999
APAC
Agriculture under NAFTA

Immediately eliminated most non-tariff
barriers and many tariffs

Phasing out all tariffs and Tariff Rate Quotas
(TRQs) over 10-15 years
i.e.
Between US and Mexico:
Wheat 2004
Sugar 2007
Corn
APAC
2008
Take Corn: What NAFTA was
Supposed to do?

Reduce domestic price of corn

Output will decrease

Labor, land and capital are reallocated

Marginal lands left fallow
APAC
The Importance of
Corn in Mexico

Originated in Mexico over 7000 years ago

Pre-NAFTA:
Over 3 million producers =
8% of population
40% of people in agriculture
60% of cultivated land
Nearly 60% of output by value
Source: The Environmental and Social Impacts of Economic
Liberalization on Corn Production in Mexico.Alejandro Nadal, 2000.
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Corn Diversity

41 landraces, thousands of varieties

Poor producers with low yields could
compete in the Mexican domestic market.

1.8 million corn producers use locally
adapted varieties (80 % of the corn
cultivation)
APAC
Failure to impose the TRQ

2-level pricing: Low tariff up to a certain
quota, high tariff after passing the
quota

15-year transition period shortened to
three years because Mexican
government never implemented the
TRQ
APAC
Mexico imports of US corn
Corn production and Imports from US
Imports increased
14-fold
Millions of metric tons
20
18
15
13
Domestic
production
10
Imports
from US
8
5
3
Source: APAC, Centro de
Estadistica Agropecuaria
APAC
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
Area under corn cultivation
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
10
9
8
7
6
5
4
3
2
1
0
1980
Hectares, in Millions
Planted area of Corn in Mexico
Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta
APAC
Corn production in
Mexico
1999
2000
1997
1998
1996
1994
1995
1992
1993
1990
1991
1989
1987
1988
1985
1986
1983
1984
1982
20
18
15
13
10
8
5
3
0
1980
1981
Millions of Tons
Volume of Corn Production
Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta
APAC
What has happened
Corn production has remained fairly
stable but area under cultivation has
increased.
 Went from 60% of cultivated land
yielding 60% of Agricultural output
value to 67% yielding 36% of value of
output.
 Environmental damage by both large
and small farmers.
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APAC
What has happened
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Tortilla prices increased
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Elimination of guaranteed price floor
subsidy
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Urban migration
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Further Dependency
Source: Down on the Farm: NAFTA’s Seven-Year’s War on Farmers and
Ranchers in the US, Canada and Mexico. Public Citizen 2001
APAC
Conclusions

NAFTA has obviously benefited
Mexico’s overall economy

GDP levels from $314.5 billion in 1991
to $617.8 billion

Small farmers lose out big time

GDP is not only measure of well-being
– Access to food & adequate housing
– Health services and education, etc.
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For More Information …
www.agpolicy.org
Agricultural Policy Analysis Center
The University of Tennessee
Dept. of Agricultural Economics
310 Morgan Hall
Knoxville, TN 37996-4519
[email protected]
(865) 974-7407 phone
(865) 974-7298 fax
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Maquiladoras in Mexico
Source: Maquila online directory
APAC
Maquiladora map
As of Jan. 2001
> 601 (1280)
251 – 600
101 - 250
76 – 100
26 – 75
1 – 25
0
Source: Instituto Nacional de Estadistica, Geografia, e Informacion
APAC
Maquiladora working conditions
Discrimination against women
 Poor working conditions
 Low wages
 No union representation
 Slum communities
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APAC
The Link between Corn
Producers and Maquiladoras
Pre-NAFTA: ~3 million corn producers
2002 ~ 2 million corn producers
Pre-NAFTA (1990): 449,519 maquila workers
(1995): 629,481
(2000): 1,277,727
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Source: Border Maquiladoras, an Overview. Frontera Norte Sur, Sept 2000
As of Feb 2003: 1,047,587
Source: Maquila Online Directory
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