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| FAS
BACKGROUNDER: Benefits of NAFTA |
| May 2005 |
| The
continued strength of North American Free Trade Agreement (NAFTA)
markets has been one of the brightest spots for U.S. farmers,
agricultural exporters, and the industries that support them. Together,
our NAFTA partners, Canada and Mexico, purchased $18.2 million worth of
agricultural products or 29.6 percent of total U.S. agricultural exports
in 2004, up from 28.9 percent in 2003 and 20.8 percent in 1993.
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Farmers in the United States, Canada, and Mexico all benefit from NAFTA.
Two-way agricultural trade
between the United States and Mexico increased 149 percent since 1993 (the
year prior to NAFTA implementation), reaching $15.8 billion in 2004.
Two-way trade increased 10.9 percent from 2003 to 2004.
Two-way agricultural trade between the United States and Canada increased 112 percent since 1993 and 8 percent with respect to 2003 reaching $21.1 billion in 2004.
Although U.S. imports have grown under NAFTA, so have U.S. exports. Without NAFTA, the United States would have lost these expanded export opportunities.
Since implementation of the U.S.-Canada Free Trade Agreement, U.S. agricultural exports to Canada have nearly doubled. Canada is now the No. 1 market for U.S. agricultural exports, which climbed from $5.3 billion in 1993 to $9.3 billion in 2003 and on to $9.7 billion in 2004.
Since NAFTA’s approval in 1993, U.S. agricultural exports to Mexico have more than doubled. Mexico is now our second largest market, taking over that rank from Japan in 2004. In 1993, Mexico took $3.6 billion worth of U.S. agricultural products compared to $7.9 billion in 2003 and and $8.5 billion in 2004.
In 2004, exports of numerous key U.S. commodities set records to both countries:
Canada: fresh vegetables, fresh
fruits, snack foods, poultry meat, pet foods, vegetable oils, planting
seeds, breakfast cereals, tree nuts, nursery products, rice, soybean meal,
processed fruits and vegetables, juices and eggs.
Mexico: red meats, processed fruits and vegetables, poultry meat, fresh vegetables, tree nuts, wheat, soybean meal, animal fats, dairy products and rice. This broad cross section of commodities suggests the benefits of NAFTA are widely distributed across U.S. agriculture.
Import competition has increased under NAFTA for some commodities, a not unexpected development, as trade barriers begin to come down and trade is subject to open marketing conditions. As the largest of the NAFTA countries and with a booming economy, it is not surprising that U.S. imports from Canada have grown strongly, providing American consumers with a broader array of competitively priced, high-quality products.
In 1993, U.S. goods faced an average tariff barrier at the Mexican border of about 10 percent, five times the 2.07 percent rate that the United States imposed on Mexican goods. With NAFTA, Mexico’s average tariff has fallen to about 2 percent. Import licensing and other non-tariff barriers have been eliminated and more than two-thirds of U.S. exports now enter duty-free.
U.S. pork producers credit NAFTA with their gains in market share in Mexico for pork products, which increased 3.5 times to $430.7 million between 1993 and 2004 and more than seven-fold to $259.8 million to Canada during the same period. One-year increases from 2003 to 2004 are quite striking: exports to Mexico and Canada surged 93.6 percent and 49 percent, respectively.
Mexico and Canada have become two of the top three U.S. poultry markets in the world: In 2004, U.S. poultry exports to Mexico were valued at $331.1 million while Canada reached $330.3 million (the Russian Federation came in at $530.5 million). Exports to Mexico increased 61.5 percent and 100 percent to Canada since 1993. The export increases from 2003 are remarkable at 27.6 percent for Mexico and 22.8 percent for Canada.
Sales of U.S. corn to Canada and Mexico increased 175 percent and fifteen-fold in value, respectively, between 1993 and 2004. In 1993, Mexico and Canada were ranked 16th and 9th, respectively, in U.S. corn markets worldwide. By 2004, they had risen to 2nd and 4th, respectively. Mexico chose to expedite its market openings for corn under NAFTA in order to provide lower cost food to its increasingly urban population and to ensure sufficient animal feed. Changes in U.S. corn exports in 2004 compared to 2003 are more ordinary than pork and poultry, registering a quite modest 3.5-percent gain to Mexico and a 3.3-percent decline to Canada (and a 3.9-percent decline since the record of $394.6 million worth in 2002).
Exports of U.S. fresh fruits and vegetables to Canada, out top market, reached $1.9 billion in 2004. This is an increase of 45.5 percent since 1993 and 5 percent from 2003. Mexico’s growth as a market for these products is even more striking: rising from our fifth largest market in 1993 to third in 2004. Exports to Mexico surged 98 percent from $134 million in 1993 to $265.8 million in 2004. The changes between 2003 and 2004 were mixed: exports to Canada rose 5 percent but declined 0.5 percent to Mexico.
Implementation of NAFTA began on January 1, 1994. Once NAFTA is fully implemented, it will remove most barriers to trade and investment among the United States, Canada, and Mexico.
Under NAFTA, all non-tariff barriers to agricultural trade between the United States and Mexico were eliminated. Many tariffs were eliminated immediately while others were scheduled for phase out over periods of 5 to 15 years. Virtually all agricultural tariffs and tariff rate quotas will be phased out by the year 2008. Currently, all Canadian and U.S. agricultural import tariffs are at zero except for Canadian poultry and U.S. sugar. As of January 1, 2003, virtually all Mexican import tariffs are at zero except for corn, dry beans, non-fat dried milk, orange juice and sugar, all of which are subject to tariff-rate quotas.
The agricultural provisions of the U.S.-Canada Free Trade Agreement, in effect since 1989, were incorporated into NAFTA. Under these provisions, all tariffs affecting agricultural trade between the United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed by January 1, 1998.
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