NAFTA Trade Issues In Agriculture Between The United States, Canada And Mexico Research Paper
Type of paper: Research Paper
Topic: Business, Agriculture, Mexico, NAFTA, Commerce, Trade, Products, Countries
The North American Free Trade Agreement or simply NAFTA is an agreement between United States, Canada and Mexico which came into effect during 1994 . This agreement resulted in the establishment of the largest world’s free trade zone while forming the basis of high level of economic growth through improving trade relations among the signing countries. NAFTA is a good example of improving the status of workers, families, farmers, consumers and manufacturers through implementation of free trade. There are few issues associated with the trade as the result of NAFTA that are being faced by the stakeholders of the agreement, especially in the case of agricultural crops and other products which are the prime focus of this paper. NAFTA has created an official website for farmers as well as other citizens of the signing countries in order to enable them to understand the way of working of NAFTA and other associated formalities involved in the trade relations of the signing countries .
The creation of NAFTA had a strong impact on the development of the agricultural sector in the US, Mexico and Canada. The problems escalated in the United States after the signing of NAFTA when the local farmers of the country had to compete with Mexican low wage farmers. American farmers are unable to compete with other two NAFTA countries that have significantly cheaper labor like Mexico. Owing to the dramatic increase in the supply of agricultural products from Mexico there is an urgent problem faced by the local farmers. There is also the issue of quality control of imported agricultural products. In Mexico, many types of pesticides that are banned in the United States are used actively. It is considered that a substantial number of agricultural products grown in Mexico do not meet the sanitary requirements of the United States.
Agricultural Trade Issues
The U.S. government faced the challenging environment due to the NAFTA in the initial stage and are still facing similar issues. The primary issue faced by the government is that before NAFTA the agricultural products were the point of trade surplus for United States which went to zero due to free trade among the signing countries. The government is not charging any tax on imported as well as exported products from and to the signing countries i.e. Canada and Mexico. Moreover, the exports have been declines with the rest of the world due to free trade with the signing countries.
On the other hand, the balance of trade between US and other two signing countries has changed to the favored side of the other countries. The imports into US from other two countries have dramatically increased due to NAFTA which has brought difficulties to the farmer of US. The agricultural trade surplus of US with Canada and Mexico has fell by USD 1.498 since signing of NAFTA .
The 1980s prolonged agricultural crises resulted in high dependence of Mexico’s economy on imports of agricultural products. Before the 1970`s Mexico imported 230 thousand tons of grain each year, in 1971-1976 this figure raised to more than 2 million tons, in 1977-1982 about 5.4 million tons and in 1983-1987 - 6.9 million tons which depicts high dependence of the country on agricultural imports.
The main suppliers of agricultural products to Mexico were partners in the North American integration - the United States and Canada. Till 1990, Mexico’s annual imports (mainly from the US) were more than 10 million tons of grain products. Thus, an active involvement of Mexico in the North American integration created conditions for a more dynamic development of the economies of its partners - the United States and Canada. In particular, it allowed US to increase employment in agriculture by 50,000 persons in 1994.
Despite the numerousness benefits of getting into NAFTA, there are costs to the trade economy of each of the countries. One of the major issues is the competition received from the international competitors while competing in the global market. The challenge comes to the tradesmen who trade freely among the three countries but when they try to trade an agricultural product in the international market they don’t get the incentive of free trade. They are required to pay charges and other taxes while competing with the other tradesmen who are well aware of the international markets and have developed good skills in trading in non-free trade zones.
One of the issues faced by the local farmers in United States and Canada is that the tradesmen, who want to export the agricultural products to countries other than the NAFTA signing countries, would prefer growing crops in low wage country with supporting weather conditions like Mexico where the cost of production is lowest among the three countries and crops can be grown without any implications from the weather. Such a situation results in loss of jobs or losses in the farming sector of the developed countries. On the other hand, such a situation is beneficial for Mexico.
Another important issue that has arisen due to NAFTA is the high dependence of agricultural economy of Mexico and Canada on the agricultural trade relations with the United States. The high dependence would mean that any downfall in the economy of the US will have direct effects on the agriculture sector of Canada and Mexico. On the other hand, any problem faced by the agriculture sector of Mexico will strongly affect the economy of United States due to its relatively high dependence on the agricultural products of Mexico.
The leading role in this alliance of NAFTA belongs to the US, in which all barriers for trading agricultural products from partner countries were eliminated. In the first three years of the NAFTA, the mutual trade between the United States and Mexico increased from $ 80 billion to $ 197 billion, and with Canada - from 197 to 364 billion. Mexican and Canadian exports of agricultural products tripled.
The technology held with the Mexican farmers is way below the level of US. The agricultural product from US and Mexico when arrive in Canada, the Canadian farmers suffer the most. The US products are high quality agricultural products with good packaging and reasonable price tags whereas Mexican products are way cheap but are not of very good quality. Therefore, the rich and normally the middle class of Canada buys the US agricultural products whereas the lower class buys Mexican products. There is no one there who would prefer Canadian high priced agricultural products in Canada. Such a condition depicts that there is no potential for agricultural exports of Canada to the other two NAFTA countries.
Canada's participation in the NAFTA has allowed the Canadian economy to implement the agreement on trade liberalization and removal of customs barriers in the United States. Canadian corporations has increased the access to the Mexican economy, the investment climate in Canada has improved that led to an increase in American and Mexican investment. It is also possible that with the development and deepening of the NAFTA the Mexican economy will receive the greatest preferences, if it would be able to adapt to the new rules of the game in terms of increased competition from American and Canadian corporations.
The agricultural trade flow has been in the favor of Canada as compared to US in between the two countries after signing of NAFTA. Such a situation is problematic to the US farmers despite high level of subsidies provided to them. The fear of lifting off the subsidies by the government is also a risk involved in investing into the agriculture sector of US which prevents high investment in the sector due to free trade as the result of NAFTA. There has been a geographical change in the orientation for agricultural trade flow from South-North direction in to North-South direction .
NAFTA is a mutually beneficial alliance of US, Canada and Mexico. As a result of its signing, the macroeconomic indicators in all participating countries have significantly improved: GDP, the bilateral trade and investment flows. Agriculture sector of the countries have also shown improvement through growth in the production and exports. The contradicting results have been received in this regard due to the accession by Mexico to the integration initiatives with the US and Canada. The opening of Mexican agriculture to international competition, which involves the participation of countries in NAFTA, poses a threat to the production of major agricultural products. Since 1990, Mexico annually imports mainly from the United States have increased to more than 10 million tons of grain products. Thus, an active involvement of Mexico in the North American integration created conditions for a more dynamic economic development of its partners - the United States and Canada. In particular, it has allowed the United States to increase employment in agriculture by more than fifty thousand persons.
On the other hand, the US, Canada and Mexico have faced challenges in the agriculture sector after signing of NAFTA. Mexico has been facing the issue of quality of product being lower than the other two countries and the subsidies provided by them to their farmers and agricultural traders. US farmers are facing the problem of high wages asked by the workers as compared to other two countries. Canada is facing the issue of low price products from Mexico and high quality products from US which has resulted in downfall of the agriculture sector in the country.
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