Apr 17, 2009
Mexican Tariffs Answer U.S. NAFTA Breach

When the North American Free Trade Agreement (NAFTA) 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 most profitable year since the agreement was signed.

But tariffs introduced in March on 89 products will erode much of that growth, unless they’re repealed soon. The tariffs imposed by Mexico were a response to the decision by Congress, and signed by President Obama, not to 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 rate. Some 50 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 (NPC).

“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

Onions – one of the commodities hit with the lowest 10 percent tariff – aren’t going into Mexico in high volume right now. In fact, Mexico ships about four to five times the volume of onions into the United States as growers here ship to Mexico. Growers are concerned that if the problem isn’t resolved, those shipments south will end, said Wayne Mininger, executive vice president for the National Onion Association.

“We’re concerned about the retaliatory action taken by the Mexican government,” Mininger said. “We’re subject now to a 10 percent import tariff. Part of our distaste is, first, that we were included and, second, that Mexico has a very positive trade balance with the United States.”

The growers, packers, marketers and shippers of the commodities taxed by the Mexican government haven’t heard why their products were selected. Mininger said the onion association was effectively “operating in a vacuum” due to the lack of information.

“I have heard no explanation as to why onions are on the list, or for that matter why other commodities are on the list,” he said.

Mininger said the association has been working with various U.S. government agencies and trade representatives to communicate the effects of the tariffs on its members. The goal isn’t to force Mexico to back down, but to have the United States uphold its agreement and restart the Mexican trucking program.

“We’re working with the U.S. government because of its reluctance to fulfill its obligation under NAFTA in regards to trucking,” Mininger said. “That was probably very offensive to the Mexican government at this time.”

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 to end it in 2008, then again in 2009. Not allowing Mexican long-haul trucks into the United States resulted in the Mexican government responding 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,” NPC’s Keeling said. “Trade is about quid pro quo. 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. But with the presidential 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.”

Secretary of State Hilary Clinton was in Mexico in late March, and the tariff situation was said to be on the agenda. Through the companies and associations affected by the tariffs, President Obama should be aware of the impact the taxes have.

“(President Obama) is aware that Congress has created a problem, and by signing that bill he’s become part of the problem, and it needs a resolution,” Mininger said.

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