International Trade:

U.S. Agencies Need Greater Focus to Support Mexico's Successful Transition to Liberalized Agricultural Trade Under NAFTA

GAO-05-272: Published: Mar 25, 2005. Publicly Released: Apr 25, 2005.

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In 1994, the North American Free Trade Agreement (NAFTA) created the world's largest free trade area and, among other things, reduced or eliminated barriers for U.S. agricultural exports to Mexico's vast and growing markets. As part of a body of GAO work on NAFTA issues, this report (1) identifies progress made and difficulties encountered in gaining market access for U.S. agricultural exports to Mexico; (2) describes Mexico's response to changes brought by agricultural trade liberalization and challenges to the successful implementation of NAFTA; and (3) examines collaborative activities and assesses strategies to support Mexico's transition to liberalized agricultural trade under NAFTA.

U.S. agricultural exports have made progress in gaining greater access to Mexico's market as Mexico has phased out barriers to most U.S. agricultural products, and only a handful of tariffs remain to be eliminated in 2008. Total U.S. agricultural exports to Mexico grew from $4.1 billion in 1993 to $7.9 billion in 2003. Despite progress, some commodities still have difficulties gaining access to the Mexican market. GAO found that Mexico's use of antidumping, plant and animal health requirements, safeguards and other nontariff trade barriers, such as consumption taxes, presented the most significant market access issues for U.S. agricultural exports to Mexico. Mexico has put in place several programs to help farmers adjust to trade liberalization, but structural problems, such as lack of rural credit, continue to impede growth in rural areas, presenting challenges to full implementation of NAFTA. Lagging rural development fuels arguments that NAFTA has hurt small farmers, although studies, including some Mexican studies, do not support this conclusion. Opponents of NAFTA want to block further tariff eliminations and are demanding renegotiation of NAFTA's agricultural provisions. Concerned about such opposition, U.S. officials acknowledged the need to promote the benefits of NAFTA, while seeking ways to help Mexico address its rural development issues. Historically, U.S. agencies have undertaken many agriculture-related collaborative efforts with Mexico. Since 2001, U.S.-Mexico development activities have taken place under the Partnership for Prosperity (P4P) Initiative to promote development in parts of Mexico where economic growth has lagged. Recognizing the importance of rural development to the success of NAFTA, Department of State and USDA strategies for Mexico call for building on collaborative activities under the P4P to pursue the related goals of rural development and trade liberalization under NAFTA; however, the P4P action plans do not set forth specific strategies and activities that could be used to achieve these goals.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In its agency comments, State Department reported that the P4P principals from the Departments of State, Commerce and Treasury, together with their Mexican counterparts, agreed on February 17, 2005, to create seven permanent working groups on critical development issues, including a working group on rural development. State Department also reported that each of the working groups was asked to identify private sector co-leads and to develop an action plan for 2005 activities. However, State Department was not able to provide copies of the P4P action plan for rural development to demonstrate that indeed such a collaborative plan had been developed and implemented.

    Recommendation: To aid the full and successful implementation of NAFTA, the Secretary of State, as the head of one of the lead agencies for the P4P initiative, should work with USDA and other relevant agencies to develop an action plan under P4P laying out specific collaborative efforts on rural development that would support the successful implementation of NAFTA. Such a plan could include a comprehensive strategy that outlines specific activities that are intended to address the challenges presented by lagging rural development to Mexico's successful transition to liberalized agricultural trade under NAFTA, and sets time frames and performance measures for these activities.

    Agency Affected: Department of State

  2. Status: Closed - Implemented

    Comments: The Partnership for Prosperity (P4P) initiative was designed to assist economically depressed regions of Mexico that are the primary sources of migration, typically rural regions in Mexico. However, our report found that P4P documents did not address Mexico's successful transition to liberalized agricultural trade under NAFTA, and P4P action plans did not set forth specific strategies and activities that could be used to advance rural development in support of free trade. We concluded that facilitating rural credit was one area in which the United States, through P4P, was in a position to collaborate with Mexico. In a letter after the report was issued, the Department of State said that the U.S. Agency for International Development (USAID) had started a new five-year project called Access to Rural Finance for the Microenterprise (AFIRMA) to strengthen institutions in Mexico's microfinance sector and expand and improve services in rural finance. According to USAID, this project has a budget of $10 million, half of which is focused on developing rural or agricultural finance in Mexico. In September 2007, at the conclusion of the project's third year, USAID reported that it had helped strengthen the capacity of microfinance institutions, offered training to develop the local microfinance industry, analyzed agricultural value chains as part of a process to help identify opportunities to expand agricultural finance, and worked with Mexican financial regulators to expand supervision of microfinance institutions. The report identified future initiatives that would be executed in support of project goals.

    Recommendation: To promote rural development in Mexico and enhance Mexican small farmers' ability to benefit from trade opportunities under NAFTA, which would also help shape a more positive perception of the agreement, the Secretary of State, as the lead agency for the P4P initiative, should work with USDA and other relevant agencies to expand collaborative efforts with the Mexican government to facilitate credit availability in the countryside. This would include providing Mexico with expertise in the area of rural financing, such as risk assessment, project management, and loan evaluation.

    Agency Affected: Department of State


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