If you want to talk about what is wrong with NAFTA, you should not talk about:
- How NAFTA is forcing Mexicans out of their simple, wholesome lifestyle into the barren trap of modern consumerism.
- How by enriching Mexico NAFTA is polluting Mexico.
- How rising urban employment as rising manufacturing exports to the U.S. increases employment is making workers in the cities worse off.
- How U.S. unemployment is artificially high because of all those jobs stolen by low-paid Mexicans.
Instead, talk about what is happening to Mexico's poor farmers as the wave of agricultural imports from the U.S. breaks over them. What happens to the 22% of Mexico's labor force that works on the land is the true area of concern, and the chief potential source of economic destruction that may be triggered by NAFTA.
Economist.com: ...It is the high cost of Mexican farming that makes it so uncompetitive. Mr Palau argues that farming in the state of Sinaloa has become almost as efficient as in the United States, with yields per hectare increasing from 2.9 tons in 1981 to 8.5 tons in 2001. But local farmers are still going out of business because their costs—from diesel to electricity to credit—are about a third higher than those north of the border. Poor transport makes a crucial difference: it costs about three times as much to deliver corn by rail from Sinaloa to Mexico city as it does to ship it there from New Orleans via Veracruz.
These are what the Americans this week politely, and correctly, called Mexico's “structural” challenges. While the country's farmers are being exposed to the full force of world competition, they are saddled with artificially high costs because much of the rest of the economy consists of public or private monopolies sheltering behind legal and constitutional barriers to competition.
The worst moment will come in 2008, when tariffs are eliminated on American corn. Because corn is so central to Mexican agriculture—using about 55% of cultivated land—it was afforded special protection under NAFTA in 1994, with a tariff of 206% on imports over 2.6m tons a year and a 15-year phase-out to zero. But so feebly have Mexican farmers risen to the challenge of feeding their own protected market that, since 1994, Mexican governments have regularly imported much more than the import quotas. Furthermore, they have not collected the revenue from the tariffs, arguing that they need cheap corn to keep the poor supplied with tortillas.
There are about 3m corn-growers in Mexico, with an average of five dependants each...
Mexico's farmers
Floundering in a tariff-free landscape
From The Economist print edition
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Mexico had a breathing-space under NAFTA to reform its agricultural practices. Time is running out fast
ON JANUARY 1st 2003, as the North American Free-Trade Agreement (NAFTA) enters its tenth year, a new phase of tariff reductions on farm produce will take place. The United States will eliminate tariffs completely on several Mexican items, including limes and winter vegetables. Mexico will eliminate them on a range of produce, including wheat, barley, rice, apples, potatoes and pork. This moves the two countries a step closer to the point, in 2008, when the last few tariffs on agricultural produce are due to be scrapped.
The Americans may be cheering, but Mexicans are not. These tariff reductions have occasioned the gloomiest predictions about the decline and fall of the entire agriculture sector, the end of the Mexican countryside, even the demise of the tortilla, the staff of Mexican life. In 2001, Mexico ratcheted up a deficit of more than $2 billion in farm trade with America. Once tariffs go, the country will surely be flooded by cheap American imports. Opposition politicians have been calling for the tariff reductions to be postponed, and even for NAFTA to be renegotiated.
Slim chance of that. But any Mexican government has to listen seriously to farmers, who make up a huge political constituency. About 8m people—22% of Mexico's active labour force—work in the countryside, although they generate only 4.4% of GDP. Yet rather than taking any difficult, strategic decisions, the government of President Vicente Fox has spent the past few months producing a tranche of subsidies, price supports and anti-dumping measures (such as a tariff of 46.5% on Yanqui Golden Delicious apples) to appease the farming lobby. On November 18th, the government announced a $10-billion programme to “armour-plate” farmers against the supposed effects of the January tariff reductions, including higher price supports for certain grains.
Unfortunately, these measures have appeased nobody in Mexico, while escalating what is, in effect, a trade war with the United States. Farmers' groups in Mexico are unimpressed with the armour-plating, arguing that the $10 billion is in fact a re-formulation of existing funds. On the other hand, the only items that now seem to be freely traded between Mexico and the United States are recriminations over each country's subsidies. This week the under-secretary at the Department of Agriculture in Washington, J. B. Penn, argued that Mexico's subsidies “question the efficacy of agreements like NAFTA”.
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Sheer hypocrisy, the Mexicans reply. They are merely responding to President George Bush's farm bill, which will lavish about $180 billion on American farmers over the next ten years. Farmers north of the Rio Bravo are much more heavily subsidised than Mexicans (see charts); but they argue, in turn, that their subsidies are piffling compared with those enjoyed by farmers in Europe and Japan.
A subsidy war with America is one the Mexican government can never win in terms of hard cash. Neither will it help Mexico's farmers in anything but the shortest term, since subsidies merely entrench the manifest inefficiencies in the system. One government official in the rural state of Sinaloa, in the north-west, estimates that about 15% of subsidies, siphoned off by corrupt bureaucrats, never reach the farmers and producers in any case. More thoughtful Mexican farmers, such as Eduardo Palau in Sinaloa, would rather see steadily liberalising trade than subsidies.
The 2003 tariff eliminations will, in fact, make almost no material difference. These tariffs have been gradually reduced since 1994; most of them will come down from only 1.5% or 2% to zero on January 1st. The real problem is not NAFTA and American subsidies, but Mexico's failure to adapt to trade liberalisation in general since the mid-1980s, when it first acceded to the General Agreement on Tariffs and Trade (GATT). Since gaining access to all those shiny new markets in America and the European Union, Mexican agricultural production has either declined, collapsed or grown only slightly. For all types of beans, for instance, production fell on average by 0.7% a year between 1980 and 2001. Wheat production has fallen by 57% since 1980, and soyabean production by about one-sixth. NAFTA merely accelerated all this. Mexicans, and world markets, have preferred cheaper alternatives.
 |  It is the high cost of Mexican farming that makes it so uncompetitive |
Mexican governments failed to take advantage of the ten-year transition period, while the tariffs were being phased out, to invest in infrastructure improvements such as irrigation. It is the high cost of Mexican farming that makes it so uncompetitive. Mr Palau argues that farming in the state of Sinaloa has become almost as efficient as in the United States, with yields per hectare increasing from 2.9 tons in 1981 to 8.5 tons in 2001. But local farmers are still going out of business because their costs—from diesel to electricity to credit—are about a third higher than those north of the border. Poor transport makes a crucial difference: it costs about three times as much to deliver corn by rail from Sinaloa to Mexico city as it does to ship it there from New Orleans via Veracruz.
These are what the Americans this week politely, and correctly, called Mexico's “structural” challenges. While the country's farmers are being exposed to the full force of world competition, they are saddled with artificially high costs because much of the rest of the economy consists of public or private monopolies sheltering behind legal and constitutional barriers to competition.
The worst moment will come in 2008, when tariffs are eliminated on American corn. Because corn is so central to Mexican agriculture—using about 55% of cultivated land—it was afforded special protection under NAFTA in 1994, with a tariff of 206% on imports over 2.6m tons a year and a 15-year phase-out to zero. But so feebly have Mexican farmers risen to the challenge of feeding their own protected market that, since 1994, Mexican governments have regularly imported much more than the import quotas. Furthermore, they have not collected the revenue from the tariffs, arguing that they need cheap corn to keep the poor supplied with tortillas.
There are about 3m corn-growers in Mexico, with an average of five dependants each. Mexico's government has squandered the first ten years of NAFTA's transition period. It now has five years left to make its farms competitive. Don't hold your breath.
Posted by DeLong at December 02, 2002 07:25 AM | Trackback