1. NAFTA and the Small Mexican Farmer
Daryll E. Ray
Director, Agricultural Policy Analysis Center
Melissa B. Cooney, Graduate Research Assistant
University of Tennessee

2. 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
Restructuring world economy based on comparative advantage and free trade
Tariffs detrimental to all parties
Tariffs should be eliminated

3. History of NAFTA 1970s and 1980s 1980s to early 1990s January 1, 1994
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

4. 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

5. 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

6. 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

7. NAFTA By the Numbers 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
Source: NAFTA at Seven, Pettigrew, Zoellick, and Derbez

8. A Growing Dependency
Source: Office of Trade and Analysis, US Department of Commerce

9. A Growing Dependency
Source: Office of Trade and Analysis, US Department of Commerce

10. 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

11. Agriculture under NAFTA
Immediately eliminated most non-tariff barriers and many tariffs
Phasing out all tariffs and Tariff Rate Quotas (TRQs) over years
i.e. Between US and Mexico:
Wheat 2004
Sugar 2007
Corn

12. 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

13. 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.

14. 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)

15. 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

16. Mexico imports of US corn
Imports increased
14-fold
Source: APAC, Centro de Estadistica Agropecuaria

17. Area under corn cultivation
Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta

18. Corn production in Mexico
Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta

19. 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.

20. What has happened Tortilla prices increased
Elimination of guaranteed price floor subsidy
Urban migration
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

21. 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.

22. Weekly Policy Column
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23. For More Information … www.agpolicy.org
Agricultural Policy Analysis Center
The University of Tennessee
Dept. of Agricultural Economics
310 Morgan Hall
Knoxville, TN
(865) phone
(865) fax

24. Maquiladoras in Mexico
Source: Maquila online directory

25. Maquiladora map As of Jan. 2001 > 601 (1280) 251 – 600 101 - 250
> 601 (1280)
251 – 600
76 – 100
26 – 75
1 – 25
Source: Instituto Nacional de Estadistica, Geografia, e Informacion

26. Maquiladora working conditions
Discrimination against women
Poor working conditions
Low wages
No union representation
Slum communities

27. 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
Source: Border Maquiladoras, an Overview. Frontera Norte Sur, Sept 2000
As of Feb 2003: 1,047,587
Source: Maquila Online Directory