Confidential and Proprietary/For internal use Food & Agribusiness Research I North American Trade...

Confidential and Proprietary/For internal use

Food & Agribusiness Research

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North American Trade Disputes:

A Mexican Perspective



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North American Trade Disputes:A Mexican Perspective

• Sources of trade irritants

• Underlying cause of trade disputes

• What’s wrong with a little dispute

• Conclusions



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Sources of Trade Disputes

• Trans-border power• Political sensitivity

– growing democracy

• Differential policy mechanisms• Relative price differentials• Rapid structural change --

technology innovation• Foreign investment -- lack thereof



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Trans border power ratio

• Size of market

• Concentration ratio

• Import market share

Size of markete * Concentration ratioe

Size of marketi * Concentration ratioi* import share

= TBPR*

imports / domestic production



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Trans border power ratio and trade conflicts


Pro

bab

ility

of

trad

e di

sput

es

Beef

Poultry



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Trans border power ratio and political sensibility:

Probability of disputes as trade grows

High

Low


Political sensibilityHigh

Medium probability Trade disputes

Nobody caresHigh probability

Low

HFCS

Avocados

Hogs

Trucking



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Differential policy mechanisms

• Policy vision• Support mechanisms• Subsidies

• Policy vision• Support mechanisms• Subsidies



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USDA organizational chart: Areas where the then SAGAR was not

involved or not overly active



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USDAUS$ 16 200 million US$1 474.3 th.

2).-Support to farmers and for export marketing

Procampo :$1 090.7 mill Mkt. Supt .$ 366.9 mill Aserca Adm:$0.2414 mill A.CampoExp$ 16.5 mill

US$ 778.8 th. US$ 2 200 million

Alianza Ag: $ 321.8 Alianza Liv: $ 155.9 Alianza RD: $301.1

4).-Rural Develop

US$ 750 million US$ 67.2 th.

6).-Ag health (sanitary) Including storage

Alianza Ag. health:$ 67.2 mill

SAGAR

US$150 million

7).-Food safety

$0.00

Comparative budgetary expenditures

Source: Consjeo Nacional Agropecuario



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Apoyos en otros países

USDA Other Gov. agenciesUS$ 36 100 million (not operated by SAGAR) US$ 5 503.2 th

1).- Social and food programs, including nutrition

Anti proverty program Capital Hum.:$ 2 695.1 mil (Progresa) Opciones Ingr:$ 906.3 mil (Pet,Fonaes) Capital físico:$ 1 901.8 mil (State local gov)

US$ 4 700 million US$ 82.4 th

3).-Natural resources

Water commission: $ 82.4 mil

US$ 2 100 million US$ 205.4 th

5).- Education and research including economic research

Inifap: $ 67.3 mil UACh: $ 69.8 mil UAAANarro$ 32.0 mil Col.Postgr: $ 30.0 mil CEASAGAR:$ 6.3 mil

TOTAL US: $ 62 200 million TOTAL MÉXICO: $ 8 509.6 million

12

Comparative budgetary expenditures




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Agricultural development budget

(Billion of 1994 pesos)

8

13

18

23

28

33

38

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Source: Various presidential informes; Banco de Mexico. !980 - 1994 refers to rural development



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Agricultural development budget as a percentage of the total programmed

budget

0%

2%

4%

6%

8%

10%

12%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Source: Various presidential informes; Banco de Mexico. !980 - 1994 refers to rural development



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Subsidy Levels in NAFTA Countries

0

20

40

60

80

100

120

140

U.S. CANADA MEXICO

1986-1987199719981999

0

5

10

15

20

25

U.S. CANADA MEXICO

199719981999

U.S. Dollars per hectare

U.S. Dollars per full-time farmer




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Government export support



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You talk the talk, butyou don’t walk the walk

The Mexican view on their NAFTA partners agricultural

policies



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Comparative subsidy levels among NAFTA

partners(PSE’s)

Apoyos en otros países

15

Mexico

Canada

United States



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Relative price differentials

• Undermines local markets• Opportunities for dumping• Strengthens exporter

balance sheet

• Undermines local markets• Opportunities for dumping• Strengthens exporter

balance sheet



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Mexican Beef Market

Imports

Wholesaleprice

us$ / Lb

1.20 1.60

1.00 1.50 4.00

Mex

USA

60

30

10Domestic

3.00

30% 83% 70%

PopularCuts

Mid-rangeCuts High end

cuts

Source: AMEG



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Source: Enrique Dominguez, WSJ, ASERCA, CMP elaboration

Price structure: Hogs and Pork in the U.S. and Mexico



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• Tomatoes - extended shelf life• U.S. beef market• Change in Mexican trade profile

• Tomatoes - extended shelf life• U.S. beef market• Change in Mexican trade profile

Structural and technological change



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U.S. beef market

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

80 82 84 86 88 90 92 94 96 98 00

mil

lon

es d

e t

on

ela

das

2829303132333435363738

kil

os

ProductionPer capita supply

Fuente: NCBA



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U.S. Beef Trade Balance(million dollars)

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

* Beef and variety meatsFuente: NCBA

*



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Food and agriculture imports(Million dollars)

0

2,000

4,000

6,000

8,000

10,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Crops Livestock Manuf. Food



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Food and agriculture imports

0%

20%

40%

60%

80%

100%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Crops Livestock Manuf. Food



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Food and agriculture exports(Million dollars)

0

2,000

4,000

6,000

8,000

10,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Crops Livestock Manuf. Foods



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Food and agriculture exports

0%

20%

40%

60%

80%

100%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

Crops Livestock Manuf. Foods



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• Stimulates trade• Creates interdependency• But can create competitive

pressure

• Stimulates trade• Creates interdependency• But can create competitive

pressure

Foreign Investment



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Foreign Investment in Mexican food and

agriculture(number of firms)

Total DFI 13,362 Share

Agriculture 227 1.70%Food Manuf. 530 4.00%

Cigarettes33%

Beer24%

Non-Alco. Beverages

9%

Milling6%

Snack foods6%

Others 22%

Source: Secretaría de Economía

Food Manufacturing



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Foreign Investment in Mexican Food and Agriculture by Country of Origin

U.S.93.2%

Canada0.3%

Others6.5%

U.S.40%

Canada8%

U.K.23%

Others16%

Holland13%

Agriculture Food



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So what’s wrong with trade disputes?

• When there is no trade there are no disputes• Keeps lawyers and economists busy• Absence of disputes could indicate collusion

– Are consumers better off?– Are farmers better off?

• Tomato case– U.S. and Mexican growers agreed to essentially a

price floor in 1996, ending a trade dispute



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U.S. imports of Mexican tomatoes(‘000 tons)

0

100

200

300

400

500

600

700

800

1993 1994 1995 1996 1997 1998 1999 2000Source: Bancomext, based on U.S. Department of Commerce data



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Prices per kilo of imported tomatoes in the U.S. market

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

1999 2000

Average MexicoCanada The Netherlands

Source: Bancomext, based on U.S. Department of Commerce data



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Mexico’s share of the U.S. winter tomato market

(% volume)

84%

86%

88%

90%

92%

94%

96%

1993 1994 1995 1996 1997 1998 1999 2000Source: Bancomext, based on U.S. Department of Commerce data



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Conclusions• An ad hoc-type dispute resolution mechanism is

needed



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Legal time frame for an trade caseLive hogs

Source: USDA, Enrique Dominguez

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

ag

o I

sep

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Oct I9

97

oct V

no

v IV

dic IV

en

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feb

IV

ma

r IV

ab

r III

ma

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jun

III

jul II

ag

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sep

II

oct I

no

v I

dic I

dic V

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feb

IV

ma

r IV

ab

r III

ma

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jun

III

jul II

ag

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sep

II

oct I

no

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INVESTIGATION REQUEST

Jun 98

PROVISIONAL RESOLUTION

Feb 99

DEFINITIVE RESOLUTION

Oct 99

INVESTIGATIONOct’97-Mar’98

Heads

480 DAYS



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needed• Need to incorporate more Mexican academics• Need to bring together private sector actors

Nevertheless• Probability for more trade conflicts in the near future



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Mexico’s aggressive trade stance

1994 NAFTA

1992 Chile

1995 Bolivia, Costa Rica, Colombia y Venezuela

1998 Nicaragua

2000 EUFTA



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needed• Need to incorporate more Mexican academics• Need to bring together private sector actors

Nevertheless• Probability for more trade conflicts in the near future

– Mexico’s aggressive trade stance– Adjustment of domestic agricultural policy

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