2004 Press Releases
On the 10th Anniversary of North American Free Trade Agreement
April 20, 2004
Statement
of Ms. A. Ellen Terpstra, Administrator, Foreign Agricultural Service,
U.S. Department of Agriculture before the Senate Foreign Relations
Committee, Subcommittee on International Economic Policy, Export and
Trade Promotion, April 20, 2004.
Mr. Chairman, Members of the
Subcommittee, I am pleased to appear before you today to discuss
agricultural trade under the North American Free Trade Agreement
(NAFTA). This year as we celebrate that agreement’s tenth anniversary,
I welcome the opportunity to review the results of NAFTA and to discuss
some important trade issues that currently occupy our attention.
Let
me begin my remarks with an unambiguous statement -- in the
agricultural sector of our economy, NAFTA is an unqualified success.
The United States, Mexico, and Canada enjoy a thriving agricultural
trade relationship derived from their historic decision to open our
borders and break down barriers to trade. In NAFTA’s tenth year,
markets continue to open and support a freer flow of agricultural
products. Farmers in the three NAFTA countries benefit from the
reduction of arbitrary and discriminatory trade rules, while consumers
enjoy lower prices and more choices.
Benefits of NAFTA
U.S.
farmers and ranchers have been major beneficiaries of NAFTA’s success
as exports of food and agricultural products from the United States to
our NAFTA partners reached a record $17.2 billion in 2003. These
exports support approximately 258,000 U.S. jobs (every $1 billion in
exports creates 15,000 jobs). NAFTA markets continue to be a bright
spot for U.S. agriculture, as agricultural trade with our NAFTA
partners has increased in size and importance.
When you compare
the performance of U.S. agricultural exports to our NAFTA partners with
our export performance to the rest of the world, the difference is even
more startling. In the ten years since NAFTA was implemented, global
U.S. agricultural exports increased by an average of only $250 million
a year as a strong dollar, numerous currency crises, and a global
economic slowdown combined to slow the overall growth in U.S. exports.
However, during this same 10-year period, our exports to NAFTA grew by
more than $800 million a year. Exports to Mexico grew by an average of
$420 million a year while exports to Canada increased by $400 million a
year, making them our two fastest growing markets by a wide margin.
What
makes our export performance to Canada and Mexico even more exceptional
is that it occurred during a period when the value of the U.S. dollar
was particularly strong against most other currencies, including
Canada’s and Mexico’s. A strong dollar hurt our exports in most of the
world’s major markets. However, in Canada and Mexico, the export losses
associated with a strong dollar were more than offset by the export
gains generated from significant improvements in market access provided
under NAFTA.
A wide variety of U.S. products benefited from
that access including processed grains, grocery products, corn,
essential oils, poultry meat, soybeans, feed ingredients, beef and beef
offal, cotton, wheat, sorghum, and pork.
Even in the area of
horticultural products, where competition is intense, U.S. producers
have benefited from NAFTA. In 1993, U.S. horticultural exports to
Canada and Mexico totaled $2.8 billion. By 1997, after 4 years of
NAFTA, our sales had jumped by more than 20 percent to $3.5 billion. In
2003, horticultural exports to Canada and Mexico continued their strong
performance, reaching $5 billion, up approximately 8.5 percent from
2002. Fresh and processed fruits and vegetables, tree nuts and wines
have all benefited from NAFTA’s accomplishments, such as lower tariffs,
the elimination of import licenses and a more transparent business
environment.
Trade is a two-way street and U.S. agricultural
imports from Canada and Mexico also increased since NAFTA was
implemented. Imports from Canada increased by an average of $590
million a year while increases from Mexico averaged $300 million a
year. However, that growth had more to do with the strength of the U.S.
economy and the dollar than it did with the trade provisions of NAFTA
since our market was already significantly open when the agreement went
into effect. In fact, over the past 10 years, our imports from the rest
of the world expanded as well - by an average of almost $900 million a
year - with almost all major foreign suppliers significantly increasing
their sales to the United States.
In addition to lowering trade
barriers, NAFTA has led to a growth in cross border investment and
economic integration on the North American continent. NAFTA fosters an
environment of confidence and stability required to make long-term
investments and partnering commitments. With a strong, certain and
transparent framework for investment, North America has attracted
foreign direct investment in the food processing industry in all three
NAFTA countries.
U.S. direct investment in Mexico has been
concentrated in highly processed products such as pasta, confectionery
items, and canned and frozen meats. In Canada, U.S. direct investment
has been geared toward the handling and processing of grains. Mexican
companies have invested in U.S. firms engaged in bread baking, tortilla
making, corn milling, and the manufacture of Mexican-style food
products while Canadian direct investment has been geared to more
general food processing.
The increased trade and investment
that has resulted from NAFTA has spurred the economic integration of
the continent. NAFTA has led to a more unified system of commercial
law, the establishment of common antitrust and regulatory procedures,
harmonization of product standards, and increased coordination of
domestic farm, market, and macroeconomic policies which has deepened
market integration and enhanced market efficiency and growth within
North America. In short, larger and freer agricultural markets in North
America have meant more choices for consumers.
Canada
Canada
is a good example of a mature market where U.S. exports have
demonstrated impressive growth in large part due to NAFTA. Canada is
our largest agricultural market. Under NAFTA, U.S. exports to Canada
have increased by 75 percent reaching $9.3 billion in 2003. For
Americans, this has meant almost 140,000 jobs.
Products setting
export records include vegetables, meats, soybean meal, bulk
commodities, snack foods, vegetable oils, fresh fruits, and pet foods.
Over
70 percent of our agricultural exports to Canada are in the
consumer-oriented high-value category. Of course this means increased
jobs in the United States as our food processing industry adds capacity
for this growing market. In 2003, fresh fruits and vegetables led U.S.
agricultural exports to Canada, stemming from increased demand in the
food service sector. U.S. fresh vegetable sales to Canada have posted
an annual growth rate of 4.2 percent since NAFTA implementation.
Today,
Canada is the second largest export market for U.S. poultry with a
77-percent gain over the pre-NAFTA level. U.S. exports of dairy
products to Canada have more than tripled. U.S. corn is used in Canada
to feed livestock, to process ethanol, and to produce sweeteners. And
U.S. pet food sales to Canada have surged by 40 percent under NAFTA.
NAFTA
has benefited Canada as well. According to Canada’s Department of
Foreign Affairs and International Trade, NAFTA has brought economic
growth and rising living standards to its citizens. In 2003, Canada’s
agricultural exports to the United States reached a record $10.3
billion. Leading agricultural exports from Canada include snack foods,
red meats, live animals and fresh and processed vegetables.
It
is important to note, that these Canadian imports also create jobs in
the United States in the trade and transportation, services, food
processing and other manufacturing sectors while at the same time
giving U.S. consumers more variety in their buying options.
Mexico
Mexico
is the world’s seventh largest consumer of food by value with recent
expenditures estimated at $93 billion - double the level of 1995. This
exceptional growth in overall food demand helps explain why Mexico has
been one of the world’s fastest growing agricultural import markets
since 1995. The good news for U.S. agriculture is that our exporters
supply 75 cents of every dollar of this import growth. The Mexican
economy is expected to grow by 4 to 4.5 percent a year as the country
continues to industrialize, benefiting from foreign investment and
trade liberalization. U.S. agricultural exports to Mexico have doubled
under NAFTA reaching $7.9 billion in 2003 supporting approximately
118,500 U.S. jobs and making Mexico our third largest agricultural
market and poised to overtake our number two market, Japan.
In 2003, the United States sent Mexico record amounts of processed fruits and vegetables, red meats, wheat, rice and soybeans.
U.S.
exports to Mexico are more diversified than those to Canada with 38
percent being bulk commodities; 40 percent, consumer-oriented products;
and 22 percent, intermediate semi-processed products. Mexico is one of
our largest export markets for each category.
Corn, soybean,
and wheat producers have increased sales in Mexico. Growth in cotton
sales to Mexico has also been very impressive, due to the country’s
rising consumer and export demand for its textiles and apparel.
However, the biggest surprise has been the strong growth of many of our
consumer-oriented products to Mexico.
Before NAFTA, U.S.
exports of these products were severely limited by trade barriers and
weak demand. Today, with lower market access barriers and the more
vibrant Mexican economy that have resulted from NAFTA, Mexico ranks as
one of our top export markets for a wide range of high-value foods,
including meats, fresh and processed horticultural products, pet foods,
and grocery products.
As with Canada, our agricultural trade
with Mexico continues to have a direct impact on the prosperity of our
agricultural industry. For example, in Nebraska, the “Cornhusker
State,” and other large feed producing states, feed corn producers have
benefited greatly under NAFTA provisions. The volume of U.S. corn
exports to Mexico has risen over 42 percent since 1994, reaching 5.5
million metric tons, valued at $653 million, in 2003.
Maryland
is another example of a state whose producers have benefited from
NAFTA. One-fourth of Maryland’s farm receipts come from broiler
production. The amount of U.S. poultry going to Mexico and Canada under
NAFTA has almost doubled.
Mexico’s agricultural exports have
also benefited from NAFTA. While Mexico has run a consistent annual
deficit of around $1.5 billion with the United States, its agricultural
exports into the U.S. market have nearly doubled since NAFTA’s
inception, reaching a record $6.3 billion in 2003. As with Canada, this
import trade creates U.S. jobs in the food support, distribution and
processing industries and offers consumers more purchasing choices.
Trade Issues
While
implementation has not always proceeded smoothly, and disputes continue
to affect trade in some commodities, there is no doubt that NAFTA has
had a significant positive impact on the NAFTA partners. Equally as
important, the agreement established procedures for handling disputes.
By “locking in” key trade and investment reforms, the agricultural
sectors and governments of NAFTA partners have been able to devote
greater attention to resolving conflicts related to other issues such
as sanitary and phytosanitary (SPS) measures. In order to facilitate
the resolution of such issues the United States remains committed to
using the tools available under both NAFTA and WTO, but also has
developed bilateral mechanisms.
In any trading relationship of
such magnitude, problems are bound to occur. For example, since 1999,
Mexico has increased its use of sanitary and phytosanitary import
regulations, which has let to disruptions in some of our agricultural
exports. It has also used anti-dumping cases to increase duties and
slow or block trade. Furthermore, a lack of consistency in applying
import requirements has caused problems at points of entry. Issues
still unresolved include a range of phytosanitary disputes, BSE and
North American harmonization, avian influenza, and disagreements on
cantaloupes.
Likewise, trade disputes have arisen between the
United States and Canada over such issues as wheat, softwood lumber and
nutritional labeling. With market access issues largely addressed
through NAFTA, the need to take matters to the WTO has been limited to
just a few key problems.
For both Mexico and Canada, we are
actively working on the trade disputes whether they are related to SPS
measures or trade remedies. The United States and our NAFTA partners
have signed bilateral Memorandum of Understandings (MOUs) to create
Consultative Committees on Agriculture (CCAs) to address the full range
of current and future trade-related concerns. These CCAs are often
complemented by high-level bilateral and sometimes trilateral
discussions on important matters. Recent successful cooperation efforts
include the significant restoration of the trade in beef with both
Canada and Mexico.
Looking Ahead
When talking about NAFTA and
agriculture, it is important to note that the agreement has more
significance than any of the statistics I have given you today. NAFTA
serves as a model and as a foundation of all our efforts to achieve
trade liberalization. In this hemisphere we are using NAFTA as a
building block to move toward the free flow of agricultural products
between more and more countries. The recently concluded negotiations
between Costa Rica, the Dominican Republic, El Salvador, Guatemala,
Honduras, Nicaragua and the United States will strip away barriers to
trade, eliminate tariffs, open markets, and promote investment,
economic growth, and opportunity for seven countries.
Also
within our own hemisphere, the United States continues to work toward
creating a free trade zone. The Free Trade Area of the Americas (FTAA)
talks, launched in 1998, offer an important opportunity to create the
economic growth necessary to alleviate poverty and raise living
standards throughout the Americas. The FTAA will be the largest trade
zone in the world, with a combined gross domestic product of over $13
trillion.
To thrive and prosper in the 21st century, U.S.
agriculture must continue to look beyond the relatively mature domestic
market to the expanding global marketplace.
The United States
is now the world’s largest agricultural exporter by value, with U.S.
agricultural exports equaling 28 percent of farm cash receipts. One out
of three acres are planted for export.
American farmers export
49 percent of their wheat, 37 percent of their soybeans, 65 percent of
their almonds and 47 percent of their rice. High-value products
generate even more additional economic activity - $370 million for
every $1 billion exported.
Trade liberalization is critical to
the economic future of our agricultural industry. Access to growing
markets is essential to the profitability of the U.S. farm sector.
In
the next 20 years, the world will gain another 1.4 billion people - a
25 percent increase in global population. The demand for agricultural
goods will soar. The U.S. is well-equipped to meet this demand….our
productivity increases far exceed our population growth.
USDA
economists project U.S. agricultural exports in fiscal 2004 will reach
$59 billion. These exports will create an additional $84 billion in
support services to harvest, process, package, store, transport, and
market products.
Farm exports support 885,000 jobs and about
one-third of these are in rural communities. Many jobs are on the farm,
but most are in trade and transportation, services, food processing,
and other manufacturing sectors.
Mr. Chairman, the
Administration is committed to American agriculture's success in world
markets. NAFTA is contributing to this success. It is on track. We will
continue working closely with the Congress in addressing the trade
policy issues that remain unresolved and any that emerge. We look
forward to close collaboration and a strong partnership in building on
the successes already achieved through NAFTA and other market-opening
agreements in expanding global trade opportunities and ensuring a level
playing field for U.S. agriculture.
For additional information on NAFTA and other trade issues please consult the following website: http://www.usinfo.state.gov/ei