North American
Free Trade
Agreement
By:
Tracy Brandenberger,
Rahul Ramdas, &
Kelsey Spillmann
What is NAFTA?
• Trade pact that took into effect January 1, 1994 that was intended
to gradually eliminate most tariffs and other trade barriers on
products and services passing between the United States, Canada ,
and Mexico.
• The pact has lead to much debate and protest from all sides,
predominantly Mexican farmers and American factory workers.
Current debates about NAFTA are focussed around the expansion of
NAFTA
• The pact has effectively created a free-trade bloc among the three
largest countries of North America, covering a region of nearly 400
million people that produces over $8 trillion in goods and services.
• The majority of industries in the United States, Canada, and Mexico
have benefited from NAFTA.
EFFECTS ON THE UNITED STATES
United States and Mexico
• Two-way agricultural trade between
the United States and Mexico
• Since NAFTA was iniated in 1994…
• Types of Exports to Mexico
• What is has done?
United States and Canada
• Two-way agricultural trade between
the United States and Canada
• Since implementation of the U.S.
Canada Free Trade Agreement…
• Types of Exports
NAFTA: THE GOOD AND THE BAD FOR
THE UNITED STATES
• While NAFTA has increased gross U.S.
exports, imports have increased as well
• While U.S. markets such as electronics,
clothing, and pharmaceuticals have
increased, certain U.S. Horticultural
markets have suffered due to open trade
with Canada and Mexico
Effects of NAFTA on U.S.
Markets
• The “Bad”
• Florida – Tomato
• California – Avocado
• The “Good”
• Washington – Apple
• California - Cherry
Florida and the Tomato
• The Florida Horticultural industry exports commodities such as
tomatoes, sugar cane, bell peppers, cucumbers, eggplant, snap beans,
and squash
• 80 Florida tomato growers produce
about 1.6 billion pounds, $400 million
worth, of tomatoes from 50,000
acres annually
• The Florida Horticultural industry has been the most outspoken
agricultural opponent of NAFTA thus far, with great deals of opposition
coming from Floridian tomato growers
Tomato Trouble
Since the development of NAFTA, imports have accounted for 32
percent of fresh tomato consumption in the U.S. in 1999 up from 19
percent in 1994
• Within the first few years of the implementation of NAFTA, Mexico,
with an ideal soil and climate for producing tomatoes, began to sell
increasing quantities to American consumers causing tomato prices
to fall
HOWEVER
• People were buying more Mexican tomatoes and fewer Floridian
tomatoes, resulting in the loss of 150 Floridian tomato growers.
Proponents for Mexico
Americans get cheaper tomatoes under free trade, they
get better ones. In the winter, Florida growers harvest
tomatoes while they’re still green and ripen them
artificially using ethylene gas.
• “Mexican tomatoes taste better and last longer because
they are vine ripened.“
- Consumers for World Trade, a pro-trade
consumer advocacy group
Proponents for Florida
NAFTA is on its way to destroying an entire industry. It
has boosted Mexico’s economy at the expense of U.S.
farmers.
• “The development of exports of one country should not
be aimed at harming to the productive capacity of
another, while adhering to the commitments made in
NAFTA."
- Secretary of Agriculture, Dan Glickman
The Result
• In 1996, Florida tomato growers fought for and won protection against
Mexican tomato imports
• In response to Florida grower protests, the US government took three steps
to slow down the implementation of NAFTA's free trade provisions with
Mexico
• 1- Indefinitely postponed cross-border trucking
• 2- Proposed to shift to a weekly measure of Mexican tomato imports. If
Mexican shipments exceeded a weekly quota, a 2.5 percent tariff would be
levied
• 3- Supported efforts to define Florida winter vegetables as an "industry" so
that growers there can more easily petition for relief from trade injury
The Result
• The U.S. Commerce Department brokered a deal that set a floor
price on Mexican tomatoes.
• Along with a price floor the Commerce Department established two
different tomato sales seasons each with a separate reference price.
• 1st Season : California and Baja, Mexico spanning from July 1 to
October 22 ($4.30 per 25-lb box)
• 2nd Season : Florida and Sinaloa, Mexico spanning from October
23 to June 30 with a higher floor price ($5.27 per 25lb box).
California and the Avocado
• California is the world’s
second largest producer
of avocados, accounting
for about 15 percent of
global production. Almost
all U.S. production is the
Hass variety.
• Mexico is the world’s
largest producer of
avocados, with an annual
production varying
between 700 and 900
thousand tons.
Ban on Mexican Avocados
• The importation of fresh avocados was banned by
the United States in 1914 after U.S. plant health
officials identified avocado seeds in Mexican
orchards as pests
• In the 1990’s bilateral negotiations were conducted
with the sanitary and phytosanitary provision of
NAFTA for the importation of Mexican avocados
Indicators of Trouble for
California
• With the approval of certain provisions of NAFTA in 1997, free trade between U.S. and
Mexican avocados began to be permitted, causing a problem for California Avocado
producers.
Mexican Advantages
• Mexican yields vary from seven to nine metric tons per hectare.
• In Michoacan normal rainfall is sufficient for production and only about half of the groves
are irrigated.
Californian Disadvantages
• Avocado production requires large amounts of water, which must be obtained from
relatively expensive irrigation water in California.
• California yields are reported to be somewhat lower at about five metric tons per
hectare.
The Result
In February, 1997, APHIS published the final rule that allowed the
importation of Hass avocados from the Mexican state of Michoacán
into 19 Northeastern U.S. states and the District of Columbia from
November to February.
The Result
• Estimated Californian
grower losses ranging
from $1.4 to $6.4
million per producer.
• Consumer gains
ranging from $3.3 to
$19 million
California and the Cherry
• The United States is a net-exporter
of sweet cherries.
• Nearly 37.7 percent of total U.S.
cherry exports originated in
California in 2001.
• Total U.S. exports reached the value
of $165.5 million in 2001, up 102
percent since the implementation of
NAFTA.
Washington and the Apple
• Since NAFTA, the Apple
industry has become the
biggest horticultural
export from the U.S. to
Canada
• Effective January 1, 2003,
the import tariff on U.S.
and Canadian apples was
eliminated as required
under the North American
Free Trade Agreement
(NAFTA).
Overall Imports From Canada and Mexico
Overall Imports From Canada and
Mexico
Effects on Canadian
Horticulture
History of Agriculture and
Horticulture
Agriculture
• 2nd largest natural resource industry
• Food sector is 2nd largest manufacturing
sector
• Farm population and area has decreased
• Top Sectors
1. Livestock
2. Grain
3. Horticulture
• Provides jobs to 1 in 7 Canadians
Regional Production
• Maritimes-
– Diversified farms
– Livestock and dairy oriented
• Western Quebec and Eastern Ontario
– Primarily dairy
– Produces most of Canada’s milk and cheese
• Southwestern Ontario
– Feedlots
– Specialty fruits and vegetables
• Northern Ontario
– Sparsely scattered dairy and livestock
Canadian Land
• 904 hectacres of land in country
• Half is tundra and rock
• 28% is forest –cannot be used for ag.
• 13% is available for agriculture uses
– 18% is suitable for field crops
– Remainder is graze land
• 0.4% is occupied by cities, roads and
other man made objects
Prairie Provinces
• Alberta
– Livestock
• Manitoba
– Diverse farms
• Saskatchewan
– Wheat
• British Columbia
– Livestock in north
– Specialty crops
Horticulture
• Represents $4.6 billion annually
• 14.4% of all Farm Cash Receipts (FCR)
• FCR’s are up 16% from 2000
• Ranked 3rd in ag sectors, behind livestock
and grains
• Exports $2.9 billion worth of products
• Land area increased between 4 and 52%
from ’91 to ’96
Growth in Horticulture
• Ornamental Industry experiencing the
most growth.
• Other current increases– Greenhouse Vegetables
– Berries, Grapes, Maples
Food Processing Industry
• International and Domestic demand is
increasing for Value Added
• Products demanded are frozen, canned,
dried or juiced
• Since 1988
– Canning Operations have decreased
– Freeze Operations have increased
Beyond the Farm Gate
• Horticulture has 9 categories with farm gate
•
•
•
values of more than $100 million
Floriculture tops the list
Value of vegetables in 2000 $115 million
Largest single crop in edible horticulture was
potato
– Growers experiencing unprecedented growth
– New state of the art processing facilities
– Large volumes of production are for foreign
markets
Canadian Agricultural
Trade
Canada & the U.S.
• Canada-U.S. Agri-Food Trade
– Implemented in 1989
– Increased trade 104% by 1994
– 53% of Canadian food exports went to the US
in ’94
– 60% of Canadian imports came from US
Canada & the U.S.
• NAFTA
– Increased trade by 82% since 1993
– Trade reached $25.1 billion in 2000
– U.S. is Canada’s largest exporter
Canada & the U.S.
• An example of crops that have benefited
– Horticultural
• Tomatoes- increased 20-fold
• Peppers and Lettuce- increased 7-fold
• Cucumbers-increased 6-fold
– Oilseeds
• Soybean oils- increased 7-fold
• Sunflower oil- quadrupled
Canada-Mexico Trade
• Trade increased by 164% since 1993
• Increased to $1.1 billion in 2000
• Exports to Mexico tripled to $692
• Mexico purchases oats, canola, wheat,
dried beans, frozen vegetables, beef and
frozen French fries.
Hot House Tomato
• Tomatoes grown in aluminum or steel structure covered in glass
• Every aspect of growth is controlled
– Heat
– Light
– Nutrients
• No herbicides and minimal pesticides are used because plants
are grown hydroponically
• Exports of tomatoes has grown from 2 billion in 1991 to 106
billion in 2001.
• Majority of the tomatoes are still field grown because of labor
intensity of Hot House Tomatoes.
The Canadian Tomato
• US tomato growers have complained that Canadian
•
•
•
•
growers are selling their tomatoes too cheaply in US
markets
1% of the 16 lbs /yr./person tomato consumption now
comes from Canada
Last year, the US increased the duty on tomatoes to
30%
Canadians have also filed a trade complaint of their own
against US tomatoes coming into Canada.
Americans and Canadians are going back and forth in a
biased battle of who thinks who is wrong
Floriculture, Nursery, & Christmas Trees
• Account for 13% of cash receipts on crop sales
• In 2000…
– exported $409 million worth of floriculture and
nursery products
– Exported 2.5 million Christmas trees
• Main floriculture exports include roses, tulips,
chrysanthemums, gerberas, lilies, alstromeria,
and snapdragons.
The Canadian Spud
• Accounts for 33% of vegetable FCR’s
• 158,900 hectares of potatoes planted
• New fry plants opening, expected to increase exports
• Over 50% of Canadian grown potatoes are processed
into French fries
• Canada exports continue to increase due to a favorable
exchange rate, good product quality, proximity to
Eastern & Midwestern markets and an increasing
manufacturing capacity.
Effects on Mexico’s Agricultural
Industries
1995 Recession in Mexico
• Devalued the Peso by 50%
– Exports became more competitive
• Exports to the US rose by $12 billion
– # of Imports decreased significantly
• Larger percentage decrease from countries other than the US
• Imports from US decreased by only $4 billion
– NAFTA agreements
– Co-production agreements
• NAFTA’s role
– Increased speed of recovery from the recession
– Provides confidence to investors
– Acted as a stabilizer
Effects on Mexico’s Economy
• Two way trade between the United States and
Mexico rose 113 percent between 1993 and
1998
• Mexico has bypassed South Korea to become 7th
largest exporter
• Mexico has become the second largest trading
partner with the U.S.
WHEAT
• Mexico has become the third largest wheat importer from the U.S after
Egypt and Japan
• Mexico’s wheat imports grew 48% over the past 5 years
– Mexico imports more in years with poor weather/production
– Mexico lifted price controls and subsidies on wheat products but not corn
products in 1995
• Tariffs on wheat entering Mexico should be eliminated this year
• According to the U.S. Wheat Association, sales to Mexico have increased
35% over the same period last year
Mexico’s Sugar Trade
• At a minimum, Mexico was allowed to ship 7,258 metric
tons of raw cane sugar duty-free.
• Limited to 250,000 tons of duty free imports per year
• Raw sugar tariff was 9.07 cents a pound in 2002 and the
refined sugar tariff was 9.61 cents a pound
– Decreases by about 1.5 cents per year
– Both will reach 0 in 2008
Whole Tomatoes
• From 1993 to 1998 there was an 83% inc.
in Mexico’s exports
• Tariffs were already low, but are being
phased out
• Minimum price/reference price restriction
• July 1 to October 22 ($4.30 per 25-lb box)
• October 23 to June 30 ($5.27 per 25-lb box)
Whole Tomatoes Continued…
• New variety of tomatoes
– Vine-ripe, ESL (extended shelf life) tomatoes
• Last one week longer in storage than a mature green
tomatoes
• Don’t grow well in Florida due to wet weather
• Tomato market is becoming more segmented
– ESL varieties preferred by consumers
– Food Service industry prefers ripe green tomatoes
for slicing
U.S Import of Tomatoes
Cucumbers
• About 38% cucumbers for U.S. consumption
are imported
– In 1998 94% (143 million according to the USDA)
of imports came from Mexico
• Tariffs
– Pre-NAFTA tariffs were near 20% on Mexican
imports to the U.S.
– These tariffs are being phased out over a 15 year
period
Citrus Fruits
• Most citrus fruits can enter Mexico and the
U.S. duty free
• Limes are the main citrus export to U.S.
from Mexico
– U.S. imported $43million of limes in 1998
– Tariff changes estimated to have increased
lime imports from Mexico by 2%
Benefits from NAFTA
• Increased trade
• Increased the number
•
•
•
of jobs
Lowers poverty in
Mexico
Assisted Mexico in
importing
environmentally
friendly technology
Regulated working
conditions
Pitfalls of NAFTA
• Will harm Mexican Farmers
– Need tariffs to support farmers
– Mexico must implement subsidies for farmers
• Lack of diversity in Mexico’s trading partners
– Bilateral trade btw Mexico and European Union (EU)
was 10-11% before NAFTA
– Currently accounts for 5-6% of trade
– Mexico relies on U.S. for 80-90% of trade
References
• www.agr.gc.ca
• http://usda.mannlib.cornell.edu/reports/erssor/intern
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ational/wrs-bb/2000/nafta/wrs99-1a.pdf
http://www.maquilaportal.com/public/artic/artic59e.h
tm
http://www.maquilaportal.com/cgibin/public/hist/hist.pl?Klein=2002-1106&Klein2=4613&Klein3=NOVEMBER
http://www.maquilaportal.com/public/artic/artic53e.h
tm
http://www.maquilaportal.com/cgibin/public/hist/hist.pl?Klein=2002-1125&Klein2=4688&Klein3=NOVEMBER
References Continued
• http://www.ers.usda.gov/briefing/tomatoes/tom
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atopdf/FrTomImpCntry.pdf
http://www.maquilaportal.com/cgibin/public/board.pl?klie=5
http://www.mexicobusiness.com/news.htm
http://www.ers.usda.gov/briefing/sugar/policy.ht
m#mexico
http://www.ers.usda.gov/briefing/mexico/trade.
htm
http://www.usmcoc.org/n6.html