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U.S. BEER FLOWS & THE IMPACT OF NAFTA

Professor PhD Richard A. MCGOWANBoston College

Professor PhD John F. MAHONUniversity of Maine

Abstract:After World War II and up until the 1980s, the liberalization of trade wasrealized on a multilateral basis. World trade grew at twice the pace of GDPgrowth (Krueger, 1999). However, starting in the mid 1980s, preferentialtrading arrangements (PTAs) increased in numbers. Perhaps the mostinfluential PTA ever to be signed could be the North America Free TradeAgreement, or simply NAFTA, which came into effect January 1, 1994. Theagreement established a free-trade area between its member countries- US,

Canada and Mexico- in which all tariffs would be phased out between them,but each country would maintain its separate national barriers against therest of the world. A lot of attention has been paid to the impact of NAFTA onthe welfare of its member countries and on the rest of the world. This paperwill focus on the impact of the agreement on the USs beer trade flows byanalyzing annual import and export data using several methods. To ourknowledge there is no precedent for such research. Section II provides abrief review of the conclusions and methodology of existing works on NAFTAtrade issues, as well as some important aspects of the agreement. Section IIIprovides an overview of the world beer industry, and the NAFTA membercountries beer markets. Section IV provides in great detail the methodology

that we will employ. The focus of Section V is to explain the results obtained.Section VI provides conclusions and implications for further research on thissubject. References and other sources can be found in Section VII.

Keywords: beer trade on US market, NAFTA

NAFTA and review of literatureNAFTA was brought forward for

consideration in the US congress in thefall of 1993. At the time the agreementsought to remove the trade barriers

between its members and create a hugenew market with a combined GDP ofaround $7.9 trillion and population of380 million people. The agreementcame into effect on January 1, 1994. Itsuperseded the Canada US Free TradeAgreement, or CUSFTA, which hadbeen in existence since 1989. Theagreement did not call for the immediateremoval of all tariff and import duties,but a gradual phase out with an average

duration between ten to fifteen years. Itdid immediately remove a substantial

amount of quantitative barriers to trade,and implemented even more favorableNorth American rules of origin clauses.Today NAFTA has become a hugeeconomic arena with a combined GDP

of around $11.8 trillion and 420 millionpeople.NAFTA has been criticized (or

acclaimed) by a wide variety of groupsand for a number of reasons. This hasgiven rise to a plethora of academicliterature. Its impact has been intenselyscrutinized on a broad number ofsubjects. We will briefly discuss some ofthe literature that focuses on theagreements impact on trade;particularly on the issues of tradediversion/creation. Although the scope

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of this paper is not directly tied to theseissues, the methodology applied is verysimilar to the one that we haveemployed. The comments on the resultswill be limited to the changes in the

bilateral trade between the US and itsmember partners. No great detail will beplaced upon the impact of NAFTA onCanada Mexico trade, or on whetherthe agreement was trade diverting oftrade creating as a whole.

Before Gould (1998), all of theliterature about NAFTAs impact ontrade was forward looking. The workwas done either before itsimplementation or shortly thereafter.Gould uses a gravity-modelmethodology to asses the impact ofNAFTA on bilateral trade flows. Heattempts to isolate the impact of theagreement by accounting for thefundamental determinants of tradeflows. The data employed was bilateralaggregate trade data on a quarterlybasis, for 1980 through 1996. Hearrived to the conclusion that after itsfirst three years NAFTA may have hadan impact on US aggregate exports to

Mexico, but that it had no effect onMexican exports to the US or on USbilateral trade with Canada.

Krueger (1999) uses trade data atthe one and two digit SITC levelcommodity categories. She employsthree different methodologies toaddress the issue of tradediversion/creation; decreasing absolutetrade with the rest of the world, shiftand share analysis, and gravity

equations. She found that intra-NAFTAtrade intensified during the 1990s, andthat a shift share analysis shows anincrease in Mexicos share of exports tothe US. Her gravity equations approachfound no evidence that trade patternswere significantly altered by PTAs,although she did find that NAFTAcountries imported less than predictedfrom members outside of theagreement.

Fukao, Okubo and Stern (2002),use a partial equilibrium model of

differentiated product industries fordifferent countries. They use a panelanalysis of US import data for the period1992-98 at the HS 2 digit level, and ahigher disaggregate level of HS 4 digit.

Their findings include that tariff rateswere significant in 15 cases out of the70 regressions that they ran. Theyprimarily conclude that the increase inMexican imports to the US came at theexpense of lower cost providersprimarily from East Asia. They highlightthe importance of disaggregatingcommodities in analyzing the effects ofNAFTA, and the need to study theimpact of the interaction of FDI andoutsourcing with tariff rates.

All of the literature seems to pointout that the effect of NAFTA on tradeflows seems to be underscored bycertain exogenous events. Theseevents make the creation of a proxy fora controlled experiment difficult.Krueger (1999) provides great insightinto these events and their possibleeffects. (1) The signing of the Bush-Salinas agreement in June 1990. Thisled to the belief that such negotiations

would ultimately result in the addition ofMexico into the free-trade area

1.

Therefore one cannot assume that thedata before 1990 provides an accuratescenario of trade without NAFTA. Manyeconomic decisions could have beentaken into consideration prior to theagreements signing, such as possibleFDI opportunities. (2) The gradualphase out of tariffs during a ten-fifteenyear period. Therefore one must take

into account that trade flows after 1994where not entirely free of imposedduties. (3) Trade liberalization, underthe WTO and PTAs, in the world as awhole. Liberalization of trade must betaken into account as its effect on worldtrade patterns cannot be easilydiscerned. (4) Mexicos tradeliberalization in the mid 1980s. Thecountry had virtually removed all of itsquantitative restrictions to imports, as

1See Hufbauer and Schott (1992).

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well as reduced its high average tariffrate by 1990. This led to a higher levelof Mexican trade in the early 90s andcould remove some importance on theeffect of NAFTA on Mexican trade

flows. (5) The real appreciation of theMexican peso during 1987-1994 andthe following depreciation as a result ofthe 1994 financial crisis. In 1987 thepeso adopted a nominal anchor. Underthis exchange rate regime, the pesowas allowed to depreciate in aproportion less than the inflationdifferential between the US and Mexico.This led to a cumulative appreciation ofthe peso, which in turn was reflected insharp changes in the percentage ofMexican trade. Exports as a percentageof GDP fell from 19.7% in 1987 to12.7% in 1992. Imports rose from13.4% of GDP in 1987 to 18.8% of GDPin 1994

2. After the political turmoil in

1994 the currency depreciated by afactor of around 100%. These violentswings in the peso might underscoresome of the impact that NAFTA mighthave had on Mexican trade patternswith the US. (6) The creation of

CUSFTA. The fact that Canada and theUS already had a free-trade area priorto 1994, might bias the impact ofNAFTA on US-Canadian trade.

The Beer IndustryWorld beer consumption reached

an estimated 133 million kiloliters,around 35 billion gallons, in 1999

3. The

world beer industry is relativelyfragmented compared to other

beverage industries. In 1998 the topfour players accounted for only 22% ofglobal volume, compared to 78% in softdrinks and 44% in spirits

4. The world

beer market can be broken down intosix major regional markets with differentsizes and growth rates (See Figure 1).Within these regional markets there are

2Source: IMF,International Statistics Yearbook,

1998.3Source; Japan Brewers organization.4Ivey(2000).

also major differences in consumptionper capita in each of the countries (SeeFigure 2).

World beer trade is a relativelysmall fraction of the global beer

industry. Although the beer industry hashuge economies of scale and there issome convergence in local tastes due tothe global media, there seem to bemany factors that inhibit the exportationof beer. These factors are not related toany quantitative restrictions to tradeimposed by the government such astariffs or quotas. We will group thesefactors into a category called non tariffbarriers to trade. Varying local tastesand preferences, and the profoundconcentration of the industry in somecountries are the two main non tariffbarriers. The former has to do with theimmense political clout that some beercompanies have in their home markets.In some countries, as it is the case inMexico, the beer industry is anoligopoly. The significant importancethat these companies have in theirhome economies gives them the abilityto influence their governments

protectionist policies. This powerfulinfluence- and the laxer legal systems-also allow beer companies to engage incompetitive practices that would beillegal in the US. For example as a foodmanager at Mexico Citys Tony Romasrestaurant says; We used to carry 28different kinds of beer, includingAmerican beers. But Modelo - themakers of Corona- gave us money tosell only its beers

5. Varying tastes and

preferences are a common determiningfactor in the trade of consumer goods.Heavy and rich ales, as it is the case ofSamuel Adams, would not have muchdemand in hotter tropical climates. Yet,as opposed to the case of soft drinks,most beer drinkers in many countriesalso seem to exhibit a strong preferencefor drinking their own national brand.This sense of national pride can posea huge non tariff trade barrier as

5 See, Wall Street Journal, Jan 17, 2003

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consumers obtain a higher utility whenconsuming their own national beerbrand. For example as a bartender inMexico Citys Outback says; TheAmericans beat us at everything, even

soccer. The one thing we do better isbeer6. These non tariff trade barriers

coupled with the strict protectionistpolicies that some countries impose onbeer imports have resulted in a glut ofglobal beer brands.

Due to the difficulties involved inexporting beer and the stagnation of thelarger mature beer markets, the worldsbiggest brewers have been forced toconsolidate over the past two decadesin order to achieve growth. Some of theworlds major beer companies havebought existing brewers in othermarkets and now hold a huge portfolioof brands in many different countries(See Figure 3). During the past twodecades there has been an increasingdemand for the super premium, andpremium beer brands in many of thedeveloped countries as consumershave become more sophisticated. Thisis especially the case in the US and

Japan.NAFTA has given its members

access to a beer market worth anestimated $76.36 billion dollars in 2002.The North American beer market is thethird largest regional beer market in theworld after Western Europe with anestimated value of $107.8 billion in1999, and the Asian-Pacific region withan estimated value of $89.3 billion in1999

7. During the period 1995-99 the

North American beer market exhibited apositive compound annual growth rate(CAGR) of 3.5 %, compared to anegative -2.5% for the WesternEuropean region, and a negative -3.06% for the Asian-Pacific region. Acomparison of the three countries thatcompose the North American marketshows acute differences in overallmarket size, growth and composition

6 See, Wall Street Journal, Jan 17, 20037See,Beverage industry, June 2001

(See Figure 4). The US beer market isthe largest market with an estimatedvalue of $55.9 billion for the year 2002,followed by the Mexican market whosevalue is estimated at $ 12.8 billion, and

in third place is the Canadian marketwith a value of $7.5 billion. The USbeer market has stagnated in growthexhibiting a CAGR of only 1% for theperiod 1997-2002, compared toCanadas 2.86% and Mexicos 10.5%.The Mexican beer industry is veryconcentrated. The top two players,Modelo and Femsa, accounted for acombined market share of 98%. In theUS Anheuser Busch and SAB-Milleraccount for 67.8%, and in CanadaLebatts and Molson account for 67.6%of the market.

Some of the major players in theNorth American market are owned bylarger breweries in other countries.Mexicos Femsa & Canadas Lebattsare both partially owned byInterBrew/Ambev. Miller was purchasedfrom Phillip Morris by South AfricanBreweries in 2002. Anheuser Buschbought an 18% stake in Mexicos Grupo

Modelo in 1993, and graduallyincreased its holding to 50% in 1998.

According to the Beer InstitutesBeer serves America; the U.S. brewingindustry includes approximately 1,800breweries and importers, 2,200wholesalers, and 560,000 retailers.Approximately 42,500 Americans workfor the nations breweries alone, takinghome $2.6 billion a year in salaries andwages. The US ranks number one in

worldwide domestic beer production,with an estimated 186.2 million barrelsper year in 2002

8 . During the past ten

years, imports have more than doubledtheir market share of the US market,accounting for 11% of retail beer salesin 2002

9(See Figure 5). US brewers

exported around 2.42% of their total

8See,Beverage industry, May 20039See,Beverage industry, May 2003

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production volume in 2002, slightly upfrom 2.3% in 2001

10.

MethodologyIn order to assess the impact of

NAFTA on US beer trade flows, we willanalyze annual trade data for the period1992-2001. The data was compiled bythe Foreign Agricultural Service, withdata from the department of Commerceand the US International TradeCommission. It is based on USimport/export receipts and it reflects thedollar value of beer trade in thousandsof dollars. We will provide separateanalysis for the export data and theimport data. The data will be submitted

to three different methods of analysis; a)comparison of absolute level of tradebetween intra NAFTA countries and therest of the world to the US, b) shift andshare analysis, and c) gravityequations.

a) Comparison of absolute levelof trade:The focus of this method is tofind any evidence that would indicate adecrease in the level of trade, or nochange at all, with third party countries

versus an increase in the level of tradebetween intra-NAFTA countries. To theextent that the level of trade flows withthe rest of the world suffered, and thattrade with NAFTA partners flourished,one could assume that the agreementhad a substantial effect on thecomposition of the level of beer trade inthe US. Although as Krueger (1999)points out, one could expect that in adynamic setting, such as the growing

world economy, any shifts in supply anddemand would result in a change inshares rather than an absolute levelchange. Nonetheless this methodsresults are worth taking intoconsideration.

b) Shift and share analysis:This method assesses the impact thatNAFTA may have had on thepercentage composition of tradebetween third party countries and

10See, Standard & Poors, September 2003.

NAFTA members. The data areseparated into two categories each inpercentage terms of total trade. Thismethod compares the shares of tradedevoted to Mexico and Canada versus

the rest of the world during each year.To the extent that the shares devoted tointra-NAFTA trade increased after 1994,at the expense of the rest of the world,one could assume that the agreementhad a significant impact on theinteraction between the USs supply anddemand for beer.

c) Gravity equations: Thismethod approaches the problemthrough the use of mathematical modelsvery similar to those employed by Gould(1998). The models attempt to controlfor other determinants of trade, so that aceteris-paribus effect of NAFTA ontrade can be discerned. This approachbetter addresses some of the problemsdescribed in section II. Through thismethod one can attempt to control forproblems 2, 5 and 6. The problem of thegradual phase out of tariffs, problem 2,will be addressed by including thephasing off in the effective tariff rates in

NAFTA countries. The issue of severeexchange rate fluctuations, problem 5,will be addressed by including theexchange rate for each year andcountry. The problem of CUSFTA,problem 6, will be addressed byassigning the NAFTA dummy variable avalue equal to one for Canadabeginning at the first year of dataavailable (1992). We will employ twoseparate models for exports and

imports. The data will be analyzed in apanel form. The Exports model includesdata from nineteen different countriesover the observation period, and theImports model includes data fromtwenty four different countries. Themodels are as follows;

Exports:EXP = B0 + B1(DISTi,us) +

B2(EXCHit) + B3(POPit) + B4(GDPit) +B5(TFFit) + B6 (NAFTA) + B7

(CONTi,us)

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Imports:IMP = B0 + B1(DISTi,us) +

B2(EXCHit) + B3(GDPUSt) +B4(TFFust) + B5 (NAFTA) + B6(CONTi,us)

The DIST variable is thedistance between the US and its tradingpartner country (i). The data is inkilometers and was obtained from theCEPII geodesic distances data set. TheEXCH is the average official exchangerate per US dollar during the year asaccessed from the World Banks WDIonline. The POP variable is the totalpopulation in the importing country. TheGDP variable is the gross domesticproduct per capita in purchasing powerparity terms expressed in currentdollars, as accessed from the WDIonline. The GDPUS is the grossdomestic product per capita in the US attime (t). This is also in purchasingpower parity terms and in currentdollars. The TFF is the effective tariffrate on beer imports expressed inpercentage terms. In the case ofexports from the US, all of the importingcountries had a value added tax (VAT).

Some countries had VATs as high as200%. In the case of imports; the USimposes a flat dollar rate on volumeregardless of value. In order to calculatethe effective tariff rate on US imports wedivided the dollar value of imports bythe volume of imports, using data from1996 to 2001, and obtained the priceper liter. Then we divided the dollar tariffrate by the price per liter to obtain theeffective tariff rate. Most of the

countries dollar per liter remainedconstant with only minor fluctuationsduring the observation period, thereforethe effective tariff rate was assumedconstant in the period 1992 to 1995unless there was some change in USgovernment policies. It is worthy to notethat the effective tariff rate on USimports is very low. The range was from0% to 4%. The NAFTA variable is adummy variable with a value of one for

Canada starting in 1992, and a value ofone for Mexico starting in 1994. The

CONTvariable is a dummy variable thatcontrols for countries with a commonborder. It is equal to one for Mexico andCanada during all years.

ResultsThis section is divided into thecorresponding results for imports andexports. Each of those two sections issubdivided into the three differentmethods of analysis. The results are asfollows:

Exports originating from the USThe first two methods of analysis

are of graphical nature. All of the graphsreferred to in this section can be foundin Figure 6.

Graph I shows the indexed valueof US exports to the top five countrydestinations. The data is indexed sothat 1992 trade volume is given a valueof 100 for all countries. As the graphclearly shows, Japans indexed value oftrade decreased from a peak of 100 in1992, to end with a value of 30.4 in theyear 2001. During this period Japanpassed from being the largest importerof US beer in 1992 to become the third

largest in 2000. Both NAFTA tradingpartners experienced an increase intheir indexed level of trade with the US.Canada maintained its number twospot, and ended up with an indexedvalue of 166.8 in 2001. Mexico becamethe most important importer of US beer,up from third position in 1992. Mexicosindexed value peaked in 2001, to reacha level of 457.4.

a) Comparison of absolute level of

trade: Graph II shows the indexed levelvalue of NAFTA trade compared to thatof US beer exports as a whole(including Mex & Can). US beer exportsbegan declining after peaking at 160.7in 1997, and ended the observationperiod at an indexed value of 98.8. BothNAFTA countries ended the observationperiod higher as mentioned in graph I.

Graph III plots the percentagechange over a year earlier for NAFTApartners, exports, and the rest of theworld (ROW). The latter value is the

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E x p . w i t h

t i m e

d u m m i e s

E x p .

w i t h o u t

t i m e

d u m m i e s

4 0 9 . 5 7 2 2 7 3 4 . 7 6

( . 0 7 ) ( . 5 9 8 )

. 4 8 8 . 5 6 5

( 1 . 2 ) ( 1 . 4 2 3 )

1 4 . 9 8 6 1 2 . 7 7 1

( 1 . 1 1 9 ) ( . 9 7 4 )

5 . 2 3 E - 0 6 4 . 5 5 E - 0 6

( . 9 8 2 ) ( . 8 7 0 )

. 5 4 4 . 4 7 0

( 2 . 2 4 5 ) ( 2 . 0 2 8 )

- 1 7 4 . 2 3 4 - 1 8 8 . 2 0 9

( - 2 . 3 3 1 ) ( - 2 . 5 8 2 )

4 3 0 6 . 4 0 2 6 2 6 0 . 4 6 2

( . 3 2 2 ) ( . 4 8 4 )

1 1 1 3 4 . 5 0 1 9 4 8 5 . 3 7 7

( . 8 7 3 ) ( . 7 6 7 )

d f 1 8 9 1 8 9

R 2 . 2 6 2 . 2 4 2A d j . R 2 . 1 9 3 . 2 1 3

F 3 . 8 2 9 8 . 3 1

T F F

N A F T A

C O N T

( C o n s t a n t )

D I S T

E X C H

P O P

G D P

total volume of trade minus that ofNAFTA partners. As the table explainsCanada has had somewhat of acontinuous upwards trend since 1993.Mexico had some decrease in its US

imports after 1994, possibly due to thepeso crisis, but had a steady upwardstrend after 1997. As one can clearly seethe continuous decline of exports to theROW countries, was much larger thanthe decline of exports as a whole. In factexports as a whole reported a gain of13.1% in 2001, compared to a declineof (3.1%) in exports to ROW countries.This is primarily due to the weight ofMexicos 94.7 % increase for that year.

After this first line of analysis onecan conclude the following; the totallevel of US exports exhibited a period ofgrowth until 1997, and then began itscontinuous decline to end theobservation period at a lower level thanit began. The decline in total exportsafter 1997 is much smaller than thedecline of total ROW exports. This isprimarily due to the fact that bothCanada and Mexico exhibitedtremendous growth in its US imports,

and adding their relative importance in

overall trade slowed the decline of totalexports.

It is hard to determine whether ornot NAFTA had any role in the increaseof US exports to Mexico, since exports

already exhibited a continuous upwardstrend previous to 1994. That growth rateturned into a decline of US exports toMexico after 1994, possible due to thepeso crisis. It is impossible to analyzefor sure if this growth rate wouldvecontinued had there not been such ahuge depreciation of the peso, orwhether the anticipation of NAFTA hadanything to do with this early trend. Onething is for certain, both the level andpercentage increases after 1997 wheremuch higher than the previous growthtrend. This could lead to the conclusionthat the peso crisis might haveunderscored the effect of NAFTA in itsfirst two years.

US exports to Canada exhibited aconstant growth rate after 1994, exceptfor one year. Although exports toCanada exhibited an impressive 53.4 %increase in 1994, this result might bemisleading due to the decline of 41.8%

the year before (Table 1).Table 1

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I m p . w i t h

t i m e

d u m m i e s

I m p .

w i t h o u t

t i m e

d u m m i e s

1 8 5 0 0 2 . 7 2 2 5 2 3 . 4

( 4 . 1 5 4 ) ( . 2 6 1 )

- 2 . 6 1 9 - 2 . 6 3 7

( - 1 . 1 1 4 ) ( - 1 . 1 4 1 )

- 8 9 6 . 4 4 - 8 9 2 . 2

( - 2 . 6 0 2 ) ( - 2 . 6 3 4 )

- 6 . 2 4 1- ( 2 . 4 0 2 )

- 7 6 1 3 6 . 8 2 - 7 6 3 0 4

( - 4 . 5 6 3 ) ( - 4 . 6 5 3 )

7 0 0 2 9 . 4 9 6 4 0 8 8 . 3 9 9

( . 7 4 8 ) ( . 7 0 3 )

1 0 8 8 7 4 . 5 8 1 1 4 0 1 0 . 5 3

( 1 . 2 3 3 ) ( . 1 . 3 2 4 )

d f 2 3 9 2 3 9

R 2 . 3 5 5 . 3 5 4

A d j . R 2 . 3 1 5 . 3 3 8

F 8 . 8 5 5 2 1 . 3 1 6

T F F

N A F T A

C O N T

( C o n s t a n t )

D I S T

E X C H

G D P U S

the case of exports the NAFTA variabledid not have a statistically significantresult, once you controlled for the factthat the US has common borders withCanada and Mexico. Again, this result

might be misleading due to the .94Pearson correlation index between theNAFTA variable and the CONT variable(Table 2).

Table 2

Conclusions andimplications for further research

Both Mexico and Canada werealready important sources in the USbeer trade, prior to NAFTAs inception.During the observation period, Canadamaintained its ranking as the secondmost important buyer of US exports,and as the third most important source

of US beer imports. On the other handMexicos relative importance in the USbeer trade grew, placing it at the topspot for both the import and exportsides. All NAFTA beer trade becamefree of duties in 2001.

US exports as a whole exhibited anegative CAGR of -.1266% during theobservation period, compared toCanadas 5.85% and Mexicos 18.4%.Exports peaked in 1995 and then

continued to decline thereafter. US beerexports to other countries face higher

value added tariffs than imports into theUS. In the case of Mexico, the countryimposed a 20% VAT on all beer importsprior to 1994. Before NAFTA, USexports to Mexico already exhibited asteady constant growth and thensuffered a steep decline during the firsttwo years of the agreement. This againraises the question about how much of

an impact the 1994 Mexican peso crisishad on Mexican beer trade. Eventhough Mexico accounted for 26% of allUS beer exports in 2001, beer importsas a whole account for a fractionsmaller than 2% of the Mexican market.On the other hand Canada exhibitedconstant growth throughout theobservation period, increasing both itslevel and share of US beer exports.

Overall the quantitative effects that

NAFTA had on US beer exports stillremain in question. Both Mexico and

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Global Beer Market by sales (1999)(in $ billions)

$107.00

33%

$14.20

4%$68.80

22%

$39.80

13%

$81.30

26%

$5.70

2%

Western Europe

Eastern Europe

North America

Latin America

Asia-Pacific

Australasia

Source; Beverage Industry, 2001

Top 20 consumption per capita Markets(in liters)

0204060

80100120140160180

CzechRe

p.

Ireland

Germ

any

Austria

Luxembu

rg

Denm

arkU.K.

Belgium

Australia

Slov

akia

Netherland

sUS

A

NewZe

aland

Finland

Venezuela

Yugo

slavia

Hungary

Spain

Canada

Gabo

n

Portu

gal

Sweden

Source; Japan's Brewer's Ass.

This work also raises the public policyissue as to why the US is the onlycountry that charges a flat dollar rate onvolume, regardless of value. Given therelatively low bilateral tariffs between

NAFTA countries and their prior

importance in US beer trade flows, theconclusion that arises is that anysubstantial effect that the agreementmight have had would surely be of anunquantifiable nature.

Figure 1

Figure 2

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World's biggest Brewers, by Volume (2002)(millions of hectoliters)

020406080

100

120140160

Interbrew/Ambe

v

Anhe

user

-Bus

ch

SABMill

er

Heineken

Mod

elo

Source; Canadean LTD.

Brand Origin 1990 2001 CAGR

Corona Mexico 12.7

(10.8%)

84.2

(28.4%)

18.80%

Heineken Netherlands 29.1

(24.7%)

56.7

(19.2%)

6.25%

Labatt B. Canada 6.0 (5.1%) 15.3

(5.1%)

8.88%

Tecate Mexico 2.9 (2.5%) 12

(4%)

13.80%

Guinness Ireland 2.6 (2.2%) 10.7

(3.7%)

13.70%

Total 117.7 296 8.75%

Source: Impact Data Bank

Numbers in parenthesis equal market share of imports

Top five US beer import brands(in millions of 2.25 gallon cases)

Figure 3

Figure 4

Figure 5

United States Mexico CanadaMarket size (Bill) $55.90 $12.80 $7.50

CAGR 1997-02 1.00% 10.50% 2.86%Consumption per capita (ltrs) 84.4 52 68.1

Key players(market share) Anheuser Busch (48.8%) Grupo Modelo (55%) Molson (37.2%)SABMIller (19%) Femsa (43%) Lebatt's (30.4%)Coors (11%) Anheuser Busch (14.7%)

North American Beer Market

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GraphI

TopFiveexportdestinations

(indexedvalue)

0

10

0

20

0

30

0

40

0

50

0

60

0

70

019

92

1993

1994

1995

1996

1997

1998

1999

2000

2001

Canada

Japan

Mexico

Taiwan

HongKo

ng

GraphII

NA

FTAtradevs.Exports

(indexedvalue)

0100

200

300

400

500

1992199319941995199619971998199920002001

Canada

Mexico

Exports

Grap

hIII

NAFTAtrade,RO

Wandexports

(%changeove

ryearbefore)

(100.0

)

(50.0

)

-50.0

100.0

150.0

Mexico

50.8

35.9

(8.0

)(44

.5)53.2

(0.5

)1

7.4

25.5

94.7

Canada(

41.8

)53.4

35.9

18

.6

11.4

2.2

12.3

(12.3

)3.3

ROW

7.3

72.9

22.4

(12

.6)(16.6

)(24.5

)(29.9

)(23.0

)

(3.1

)

Exports

4.3

68.6

21.1

(12

.2)(12.0

)(20.3

)(20.8

)(15.9

)13.1

1993

1994

1995

1996

1997

1998

1999

2000

2001

GraphIV

Shiftin

relativesharesofexports

(%value)

-50.0

0

100.0

0

ROW

Canada

Mexico

ROW

83.2

85.6

87.788.6

88.2

83.6

79.2

70.1

64.2

55.0

Canada1

1.1

6.2

15.656.3

38.5

510.8

13.8

19.6

20.5

18.7

Mexico

5.6

68.1

86.605.0

13.1

65.5

16.8

810.2

15.2

26.1

19921993199419951996199719981999200020

01

Figure

6

52

8/14/2019 !!!!!GM_U.S. BEER & NAFTA

15/16

53

Graph

V

Topfiveimportdestinations

(indexedvalue)

0100

200

300

400

500

600

199219

9319

9419

9519

9619

9719

98 1

99920

0020

01

Mexico

Netherlands

Canada

Germany

UK

GraphVI

N

AFTAtradevs.Imports

(indexedvalue)

0100

200

300

400

500

600

199219931994199519961997199819992000200

1

Mexico

Canada

Imports

Graph

VII

NAFTAtrade,ROW

andImports

(%changeoveryearbefore)

(50.0

)

0.0

50.0

Mexico

Canada

Imports

ROW

Mexico

10.6

15.2

26.7

28.8

36.0

32.1

18.0

16.3

16.0

Canada

10.3

21.2

(1.7

)6.5

(6.9)

(3.6

)1.0

15.9

9.9

Imports

8.9

11.6

10.9

13.1

13.8

14.8

10.7

15.1

7.7

ROW

8.1

8.2

10.1

9.6

10.3

10.4

8.3

14.2

2.1

19931994199519961997

1998199920002001

GraphVIII

Shiftinrelativesharesofimports

(%value)

0%

50%

100%

ROW

Canada

Mexico

ROW

66.2

65.7

63.7

63.2

61.2

59.4

57.1

55.9

55.5

52.6

Canada

16.6

16.8

1

8.2

16.1

15.2

12.4

10.4

9.5

9.6

9.8

Mexico

17.3

17.5

1

8.1

20.7

23.6

28.2

32.4

34.6

34.9

37.6

199219931994199519961997199819992000

2001

1553

Figure

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54

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