Mar 24, 2009Mexico Responds to U.S. Breach of NAFTA with Tariffs
When the North American Free Trade Agreement went into effect Jan. 1, 1994, it eliminated trade barriers between the United States’ biggest trading partners. The agreement benefited U.S. agricultural producers to the tune of $11.5 billion in 2007, the highest year since the agreement was signed. But tariffs introduced last week on 89 products will erode much of that growth unless they’re repealed soon. The tariffs come in response to the decision by Congress, and signed by President Obama, to not allow Mexican long-haul trucks into the U.S. interior, a key point in the original NAFTA document.
The Mexican tariffs hit fresh grape exports the hardest with a 45 percent tariff. Some 55 other products will be taxed at 20 percent, including frozen potato products, onions, pears and cherries. The tariff will have a chilling effect on the producers who have worked hard to increase exports to the United States’ largest trading partner, said John Keeling, executive vice president and CEO of the National Potato Council.
We feel we’ll lose 50 percent or more of our market, and that will be $40 million,” Keeling said. “Potatoes are the perfect poster child for what these actions are. The potato industry competes head-to-head with Canada, and with processors right at the U.S.-Canadian border there’s no higher shipping cost from Canada. But if you add a 20 percent tariff on U.S. products, where are people going to buy from?”
The affected produce items and their tariff rates are:
– Fresh grapes: 45 percent
– Pears: 20 percent
– Fresh apricots: 20 percent
– Fresh cherries: 20 percent
– Fresh strawberries: 20 percent
– Frozen potatoes: 20 percent
– Prepared, not frozen, peas: 20 percent
– Prepared or preserved cherries: 20 percent
– Unfermented fruit juice: 20 percent
– Juice concentrate: 15 percent
– Onions: 10 percent
– Cabbage Lettuce: 10 percent
President Clinton signed NAFTA into law in 1993, but soon thereafter gave in to complaints that Mexican trucks weren’t safe. The Mexican government sued the United States in a NAFTA tribunal and won, but the countries continued negotiations for years until President Bush instituted a pilot program for the states that border Mexico. That program ran for two years until Congress voted in 2008 to end it, then again in 2009 and was signed into law by President Obama. Not allowing Mexican long-haul trucks into the United States resulted in the Mexican government responding in kind by levying high tariffs on U.S. products.
“No. 1, we’re saying ‘we told you so’ to Congress and the Teamsters,” said Clayton Boyce, vice president of public affairs and spokesman for the American Trucking Association. “Now a lot of American businesses are having to pay for this, including agricultural producers.”
The pilot program showed that the Mexican trucks could be safe — every truck was inspected at the border and they were outfitted with Global Positioning Satellite transponders to verify destinations.
“The facts would support that the safety argument is a red herring,” Keeling said.
The Mexican government was within its rights to issue the tariffs because the U.S. government didn’t uphold its side of the agreement, but that doesn’t make it easier on the agricultural sectors affected by the situation.
“Trade is about quid pro quo,” Keeling said. “This is going to translate into lost jobs.”
Keeling doesn’t see the issue being resolved immediately – Congress signed into law a bill that eliminates funding for the program, so any solution will have to be funded administratively and not up to approval by Congress, he said. But with the administration and Congress bailing out other industries, Keeling said they’re aware of how bad it looks to stifle trade between the two countries.
“We’re hearing some of the right things from the administration,” Keeling said.
President Obama has a trip scheduled to Mexico in April, and Keeling expects the tariff situation to be high on the agenda. He encouraged producers to contact their representatives in Congress to let them know how important the free trade agreement is between the United States and Mexico.
“People are starting to tell the president what a problem has been created here,” Boyce said. “It’s really the producers of these products that need to tell the president and their Congressmen how it’s affecting them.”
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