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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
Trans border power ratio
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
Trans border power ratio
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
Source: Consjeo Nacional Agropecuario
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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
Source: Consjeo Nacional Agropecuario
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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
I
Oct I9
97
oct V
no
v IV
dic IV
en
e IV
feb
IV
ma
r IV
ab
r III
ma
y III
jun
III
jul II
ag
o II
sep
II
oct I
no
v I
dic I
dic V
en
e IV
feb
IV
ma
r IV
ab
r III
ma
y III
jun
III
jul II
ag
o II
sep
II
oct I
no
v I
dic I
INVESTIGATION REQUEST
Jun 98
PROVISIONAL RESOLUTION
Feb 99
DEFINITIVE RESOLUTION
Oct 99
INVESTIGATIONOct’97-Mar’98
Heads
480 DAYS
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Conclusions• An ad hoc-type dispute resolution mechanism is
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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Conclusions• An ad hoc-type dispute resolution mechanism is
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