NAFTA’s Liberalization of Corn Trade Approaches
the Finish Line
Steven
Zahniser
Implementation of the North American Free
Trade Agreement (NAFTA) is nearly complete. Since
the start of the agreement’s implementation
in 1994, member countries Canada, Mexico, and the
United States have systematically dismantled thousands
of restrictions on regional trade. The few trade
barriers that remain to be phased out under NAFTA—including
the transitional tariff-rate quota (TRQ) for U.S.
corn exports to Mexico—will be eliminated
in 2008.
Corn is a staple in Mexico, where
it is cultivated by producers who range from large
commercial operations to farmers with less than
5 hectares (about 12 acres). About 1.5 million of
Mexico’s farmers cultivate corn, and many
of those with smaller land holdings live in poverty.
The TRQ was established with these circumstances
in mind, and corn is one of a few commodities whose
transition to free trade has taken place over 14
years (1994-2007), the longest transition period
allowed by the agreement. This TRQ gradually became
less restrictive during the transition and will
disappear in 2008. The corn TRQ, along with additional
actions taken by Mexico, has allowed substantial
growth in trade, and the last step of NAFTA’s
implementation is unlikely to generate a large additional
impact.
In recent years, the Mexican Government
has pursued a more liberal trade policy toward corn
than required by NAFTA. Import tariffs of 2 percent
or less have often been applied beyond the duty-free
amount of the TRQ, rather than the prohibitive over-quota
tariff allowed by the agreement. Usually, this special
treatment has been reserved for yellow corn, which
is used in Mexico mainly to feed livestock and to
manufacture starch. As a result, U.S. corn exports
to Mexico (including cracked corn, which is not
subject to the TRQ) reached 40 percent of Mexican
production during 2002-06, compared with 17 percent
during 1984-93, the decade preceding NAFTA. Yellow
corn makes up the bulk of this trade, while white
corn, used mainly to make tortillas, accounts for
less than 5 percent.
An important question is how growth
of the U.S. ethanol sector will affect Mexico. Increased
corn demand from the ethanol industry has led to
higher prices and greater competition among corn
buyers. In early 2007, tortilla prices in Mexico
jumped by roughly 40 percent from their mid-2006
level. Although U.S. ethanol is rarely made from
white corn, both white corn and yellow corn are
used to feed livestock in Mexico, and this overlap
between the two corn markets links ethanol to tortillas.
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