Tying loose ends under NAFTA, remaining quotas to expire

by Jay Sjerven
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WASHINGTON — In January 2008, 14 years after implementation of the North American Free Trade Agreement, the few remaining tariff rate quotas (T.R.Q.s) restricting the sales of U.S. farm commodities to Mexico will be ended. The two most prominent T.R.Q.s that will be lifted relate to U.S. corn and dry beans, according to "NAFTA at 13: Implementation Nears Completion," a study issued by the Economic Research Service of the U.S. Department of Agriculture in March.

Corn is the only grain still subject to transitional trade restrictions under NAFTA. The U.S.D.A. noted Mexico is entitled to apply T.R.Q.s to U.S. and Canadian corn until 2008. At the same time, it noted the Mexican government has pursued a more liberal trade policy toward corn than the treaty required. For instance, in 2005, Mexico authorized import permits for about 8.2 million tonnes of corn, far more than the 3.5 million tonnes of duty-free access provided under the NAFTA T.R.Q. In recent years, the Mexican government has applied a tariff of only 1% to over-quota imports of U.S. yellow corn, much less than the 18.2% NAFTA transitional over-quota tariff.

U.S. corn (including cracked corn) exports to Mexico equated to about 35% of Mexican corn production during 2001-05, compared with 15% during 1984-93, the decade that preceded NAFTA. Despite increased U.S. corn exports to Mexico, Mexican corn production generally has increased during the NAFTA years, the U.S.D.A. said.

Most U.S. corn exported to Mexico is yellow corn, which is used for animal feed or to manufacture starch.

White corn, used mainly to make tortillas and other corn-based foods for direct human consumption, accounts for less than 5% of U.S. corn exports to Mexico.

"The Mexican government has favored domestic white corn production by providing marketing payments to certain commercial producers and by applying NAFTA’s over-quota tariff for corn to white corn," the U.S.D.A. said.

The U.S.D.A. noted changing Mexican diets have decreased white corn per capita consumption in Mexico from 90-95 kgs per capita in 1996 to 70 kgs in 2006.

"In this context, U.S. white corn exports have declined almost without interruption since 2000," the U.S.D.A. said.

It was uncertain whether U.S. producers would find it worthwhile to grow more white corn specifically for export to Mexico, with ethanol providing expanding outlets for yellow corn and Mexico willing to import only non-bioengineered white corn.

There has been unrestricted export of U.S. cracked corn to Mexico since 2003.

"Over the past several years, Mexico has imported large volumes of U.S. cracked corn (2.7 million tonnes in 2005) as some buyers sought to bypass the permit system that regulates Mexican corn imports," the U.S.D.A. said. "Following the end of NAFTA’s transitional restrictions in 2008, cracked corn imports are likely to be replaced almost in their entirety by conventional imports of corn." U.S. sorghum exports to Mexico also are expected to decline once the T.R.Q. on corn is lifted.

"A key topic of interest is how the growth of the U.S. ethanol sector will affect the Canadian and Mexican industries that rely on U.S. corn exports," the U.S.D.A. said. Demand for corn for ethanol production could reduce U.S. exportable supply. "Thus, the expansion of U.S. ethanol production may create new opportunities for feed grain producers in Canada and Mexico and raise the input costs of industries that currently rely on U.S. corn," the U.S.D.A. said.

No effect seen for dry beans

Under NAFTA, gradually less restrictive T.R.Q.s limited U.S. and Canadian dry bean exports to Mexico. The common bean varieties subject to the limits include black, pinto, kidney, navy, Great Northern, small white, pink, cranberry and small red beans. Certain other beans already benefit from free trade, including garbanzo, lima, blackeye and Adzuki.

For fiscal 2007, the duty-free quotas are roughly 73,000 tonnes for U.S. dry beans and 2,000 tonnes for Canadian product. The tariff applying to beans imported in excess of the quota is 11.8%.

During the NAFTA period 1994-2005, U.S. dry bean exports to Mexico accounted for 6% of Mexican production compared with 5% during the decade that preceded the accord.

Randy Duckworth, executive director, U.S. Dry Beans Council, Grapeview, Wash., said he foresees no dramatic change in dry bean exports to Mexico with the lifting of the T.R.Q. Mr. Duckworth pointed out Mexico produces more than 90% of the dry beans its people consume.

"We just fill the gaps," he said.

Growth in U.S. exports of dry beans to Mexico will be incremental, and Canadian dry bean producers likely will benefit the most, at least initially, as the T.R.Q. for that nation’s dry bean exports to Canada under NAFTA has been so much lower than that afforded the U.S. In recent years, the Canadian production of dry beans has increased, with growers seeking foreign as well as domestic outlets.

"The Canadians will be more of a competitive presence in Mexico," Mr. Duckworth acknowledged.

This article can also be found in the digital edition of Food Business News, July 10, 2007, starting on Page 34. Click here to search that archive.

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