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.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of State 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.
Closed – Not Implemented
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.
Department of State 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.
Closed – Implemented
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.

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