Mexico's trade Affairs, NAFTA, FTAA, Doha Round

Content

1. Mexico as a NAFTA member
1.1 NAFTA’s influence on Mexico’s agriculture
1.2 NAFTA’s influence on Mexico’s industry
1.3 Conclusion

2. Mexico’s position on

3. Mexico’s position on

4. Conclusion: Multilateralism vs. Bilateralism

1. Mexico as a NAFTA member

The North American Free Trade Agreement is an agreement between Mexico, Canada and the USA, which is based on the principles of the European Union. It was established in January 1, 1994 and has the purpose to lower trading barriers as much as possible to reach a more fluent international trade, which means more gains from trade for each of the countries.

Even though the three countries are neighbors it is remarkable that two first world countries and the third e.g. second world country, Mexico, are responsive to such a close agreement. One wonders how the interaction between those countries works.

Indicators for poverty in Mexico are for example that in 2002 half of the population in Mexico was living in poverty and one fifth in extreme poverty.^[1]

As we can see by taking a closer look to their GDP as an indicator for their financial and economic situations we recognize large differences between the two richer countries and Mexico, which of course does not belong to the poorest of the poor but still does not take in one of the first places in the world rank.

GDP-per Capita (2003) World Rank

United States $ 37,800 2

Canada $ 29,700 12

Mexico $ 9000 85^[2]

A1: GDPs of NAFTA members

Questions that might appear in this perspective are, if Mexico can face trade with those higher developed countries as an equal partner and in how far Mexico’s economic situation improves through it. Which industries benefited most and which industries might have suffered by higher productivity in other countries show as a result if the initial intuition of NAFTA could be realized.

In the following we want to examine in how far the NAFTA improved Mexico’s economic situation especially in the sectors of agriculture and other industries.

We will discuss the equality of the countries and if given dominant positions.

1.1 NAFTA’s influence on Mexico’s agriculture

The more developed the country the less important is agriculture for the economy. In high developed countries as in the example of the USA agriculture contributes in average 2% to the GDP. In Mexico’s case agriculture makes up 8% of the Gross Domestic Product (GDP) and employs 22 %of the labor force, which makes this sector very influential.

Exports from the USA to Mexico amount to 12 % of all US American agricultural exports whereas Mexico exports to the US $4.7 billion. This makes up 60% of all agricultural exports for Mexico.^[3]

Only 12% of Mexico’s land is arable while the US has 19 percent of arable area.

Those numbers show us how much each country is depending in the agricultural sector. Agriculture still plays an important role for Mexico’s economy and due to the large working force a large part of the population lives on it.

Shortly after NAFTA entered into force the employment in agriculture in Mexico started to reduce constantly. In 1993 there were 8.1 million Mexicans employed in the agricultural sector; in 2004 6.8 million were working in this area. The percentage of population that was engaged in the agricultural sector withered from 1991 between 2004 at about 10 %.

Since NAFTA’s approval in 1993, Mexico became the U.S. second largest market overtaking Japan. In 1993 Mexico still imported $3.6 billion worth of U.S. agricultural products whereas in 2004 $8.5 billion were imported.^[4]

The United States supplied more than 71% of Mexico's total agricultural imports in 2005, due in part to the price advantage and preferential access that U.S. products enjoy.^[5] This fact is striking regarding that agricultural commodities can be produced much cheaper in Mexico than in the USA. The US supports its own producers through subsidies in order to guarantee that their domestic farmers still can sell their product at a cheaper price on international markets and also to Mexico. This process is a kind of non-tariff barriers.

Non-tariff barriers are restrictions to imports which are no tariffs. They are often used when it is necessary to protect health, safety or sanitation.

Those non-tariff barriers might be considered to be unfair due to the fact that free trade under equal conditions is not warranted if one country, in this case the richer one can give substitutes to its farmers.

80 % of US subsidies go to large farmers on a regular and annual basis.^[6]

Even though the US is heavily criticized for this behavior not only by Mexico but also internationally the US government claims that no international body ( with respect to the NAFTA or similar agreements) can make or change US law.

A2: Job losses in corn production, 1991-2000

Total Men Women

Personal consumption -670,000 -597,000 -73,000

Sales -343,000 -309,000 -34,000

Total -1,013,000 -906,000 -107,000

* Includes bean producers.

Source : Special tabulations of the agricultural module of the National Employment Survey 1991 and 2000, INEGI National Employment Survey 1991

and 2000, INEGI.

The producers that suffered most from the low trading barriers and the substitutes of US crops were the corn producers. 1.013 millions of them lost their jobs. 142,000 were lost in the production of flowers and fruits until 2003.

Another case that allows the US to gain an advantage a country normally cannot achieve is by denying access of a certain crop or good to the country.

A famous example is the US-Mexican Avocado Dispute.

An article of the NAFTA, called Article 756, was determined in order to avoid disputes between the three member countries that might origin from the preparation and processing of traded food. It makes clear under which conditions food is allowed to be traded among the countries. They are called Sanitary and Phytosanitary Restrictions. The six principles of those restrictions are, that the trading countries:

1. May adopt any sanitary and phytosanitary measures necessary to protect human, animal, and plant life and health.
2. May establish appropriate levels of protection.
3. Must adopt science-based measures.
4. Must not discriminate between foreign and domestic goods.
5. May apply measures only to the extent necessary to achieve its appropriate level of protection.
6. May not adopt sanitary and phytosanitary measures which create disguised restriction on trade. (Roberts and Orden)

[...]

^[1] http://web.worldbank.org

^[2] http://www.worldfactsandfigures.com/gdp_country_desc.php

^[3] http://www.usmcoc.org/n8.html

^[4] http://www.fas.usda.gov/

^[5] http://www.fas.usda.gov/info/factsheets/NAFTA.asp

^[6] http://www.worldpublicopinion.org/pipa/articles/