CAST Releases U.S. Agriculture and the North American Free Trade Agreement

July 22, 1993

The members of a Council for Agricultural Science and Technology (CAST) task force believe many of the fears of the North American Free Trade Agreement (NAFTA) are not well founded. On the issue of loss of jobs to Mexico, the United States should want to compete with workers at the high end of the wage distribution, not at the low end. This requires continued investment in training and education programs. In addition, the United States faces strong competition from Germany, Japan, and the newly industrialized countries. The United States must avail itself of the benefits of freer trade to remain competitive. Protecting our productive sectors from these competitive forces is not the way to defend our standard of living. The only way to assure that our standard of living continues to grow is to seek to make ourselves more competitive, not to protect our economy.

If approved, the NAFTA will create the world’s largest free trade area–360 million people producing $6.2 trillion of goods and services and exporting and importing more than $1 trillion worth of goods. The NAFTA will phase out 90% of all tariffs among Canada, Mexico, and the United States over 10 years and eliminate remaining tariffs on politically sensitive products over 15 years.

Increases in per capita income from trade-induced economic growth can be a powerful source of expanding markets. Lowering barriers to trade between Mexico and the United States will create strong markets for U.S. agricultural producers. The cost of labor services, not the wage rate, is the real issue. High levels of productivity in the United States tend to give U.S. workers an advantage even though their wages are much higher than in Mexico. This advantage is reinforced by the efficient U.S. marketing system and physical infrastructure.

U.S. exports of agricultural products to Mexico are expected to increase by $480 million, while Mexican exports to the United States are expected to increase by $170 million. U.S. farm income is expected to increase by up to $200 million. U.S. consumers are expected to pay somewhat higher prices due to firmer markets, and the government will save some on program costs. On balance, the U.S. economy gains about $300 million from the agreement, ignoring dynamic effects. Foreign direct investment in Mexico will help raise wage rates and cause the economy to expand, thus increasing imports from the United States. These dynamic effects of trade liberalization will redound to U.S. producers.

There generally would be a gain to U.S. producers of grain, oilseeds, livestock, and possibly dairy, and losses for producers who compete with Mexican fruits and vegetables. The fruit and vegetable producers in Florida, California, and Arizona will bear a significant share of the adjustment costs from trade liberalization. Training and retraining programs must be provided for those dislocated by the lowering of barriers to trade. Literacy skills should be provided to those who need them. In some cases subsidized credit or grants to assist in relocation and temporary sustenance until alternative employment is obtained would be desirable.

The environmental provisions of the NAFTA attempt to establish the same standards for Mexico as those that prevail in the United States. President Clinton has proposed a side agreement that will provide stronger provisions for enforcement than in the agreement itself.

The committee of seven scientists was chaired by Dr. G. Edward Schuh, Dean, Hubert H. Humphrey Institute of Public Affairs, University of Minnesota, Minneapolis. Four additional scientists served as credited reviewers.

U.S. Agriculture and the North American Free Trade Agreement, a 41-page publication, is available for $10.00 from CAST, 4420 West Lincoln Way, Ames, Iowa 50014-3447, (515) 292-2125, Richard E. Stuckey, executive vice president. CAST is a nonprofit consortium comprised of 34 member scientific societies in food and agricultural science and many individual, student, company, nonprofit, and associate society members.


Related Publications: U.S. Agriculture and the North American Free Trade Agreement

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