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U.S. Challenges Mexico at WTO:
New round of disputes threatens to discredit FTAA

Jessica Leight
R
research Aassociate
[Council on Hemispheric Affairs] (1)

  • The U.S. challenges anti-dumping orders imposed by Mexico on U.S. exports of beef and rice in front of the WTO.
  • Only the latest of a series of clashes between the two nations over agricultural trade issues.
  • If left unresolved, these disputes threaten to undermine the credibility of the proposed FTAA by convincing the rest of Latin America that for agricultural products, free trade with the U.S. is not fair trade.

On June 16, the office of the U.S. Trade Representative Robert Zoellick announced that it had filed a case before the World Trade Organization protesting anti-dumping duties that Mexico had imposed on U.S. exports of beef and rice.  By enacting these duties, Mexico claimed that the U.S. was “dumping” its products on the Mexican market—exporting them below their cost or home-market price—in a manner that was injurious to Mexican producers.  When dumping does occur, the recipient country has the right under international trade law to bar these underpriced imports from its domestic market; however, the exporting country, in this case the U.S., can challenge the accusation of dumping before the WTO in a process that may take up to eighteen months, beginning with a 60-day period of consultation and followed by the appointment of a panel that will consider the complaint. 

Twice before, when the U.S. filed WTO challenges to Mexican anti-dumping investigations on high fructose corn syrup and swine, Mexico backed down, withdrawing the investigations as a result of the U.S. challenge.  This latest clash, however, is by no means an isolated incident but only the most recent in a series of disputes between Washington and Mexico City over trade in agricultural products; thus it may prove to be far more acrimonious than has been the case in previous encounters.  Given that most of the conflicts stem from provisions of the 1994 NAFTA agreement, the ongoing bickering threatens to undermine the credibility not only of NAFTA but also of the proposed Free Trade Area of the Americas.  If the Bush administration wishes to preserve momentum in already faltering FTAA negotiations, it must prioritize the rapid resolution of disputes with Mexico in order to demonstrate to the rest of the hemisphere that amicable free trade is possible on terms perceived as fair by both partners. 

 

Mexican Agriculture: A Sinking Sector Mobilizes 

Many of the latest disputes over agricultural trade between Mexico and the United States—exacerbated by political differences over Iraq, immigration and other issues—can be traced to the onset on January 1, 2003 of the second of three phases of trade liberalization scheduled under the original NAFTA agreement.  This entailed the removal of Mexican tariffs on 21 agricultural products imported from the U.S.; the only products for which any limitations remain are corn, beans and powdered milk, scheduled to trade freely beginning in 2008.  With the onset of this next phase of liberalization, Mexico’s reeling agricultural sector has begun to feel even more intense pressure as cheap U.S. products flood its markets in ever greater volumes.  Already, since the implementation of NAFTA in 1994, Mexico has become a net importer of many items previously produced domestically, including wheat, rice, soy and meat.  Moreover, its poorest farmers are suffering heavily in the face of overwhelming competition from U.S. agribusiness: 75% of rural Mexican campesinos now live below the poverty line and an estimated 600 peasants are forced off their land every day. 

The most recent and most visible upsurge of protests against the deterioration of such conditions for Mexican farmers began last November, when twelve independent campesino organizations united to lobby the government under the slogan El Campo no aguanta más,” or “the countryside can take no more.”  In early December, protesting farmers rode horses and tractors in an attempt to storm the Congress, setting their hats on fire and throwing them against the barred doors. 

Demonstrations continued through January: in San Cristobal De Las Casas in Chiapas, in Ciudad Juárez-El Paso, and in the capital, where as many as a hundred thousand farmers marched silently in the largest peasant demonstration in Mexico City since the mid-1930s. 

Mexico Defends Its Markets

The Fox administration, politically threatened by this rising tide of agrarian discontent, attempted to meet the farmers’ challenge by initiating a series of aggressive actions to limit the flow of American farm products into the country.   The anti-dumping orders currently being challenged before the WTO had in fact been imposed earlier, with importations of U.S. beef limited starting in April 2000 and rice starting in June 2002.  This past January, Mexico began to enact restrictions on a number of other commodities. 

First, the government initiated yet another anti-dumping investigation against U.S. pork.  The Bush administration has been working through bilateral channels to terminate this investigation, and has threatened that the imposition of duties would be again met by a renewed U.S. challenge before the WTO.  Also in January, negotiators reached a temporary accord limiting imports of U.S. poultry into Mexico, representing a serious blow to U.S. poultry producers, though there has not been any final agreement on quotas for poultry.  Washington’s ire only increased when Mexican authorities began a crackdown on U.S. bean exports on the grounds that some were not, in fact, of American origin.  Allen Johnson, chief agriculture negotiator for the office of the U.S. Trade Representative, then threatened reprisals against Mexico if the agricultural trade situation did not improve; Javier Trujillo, an official in the Mexican Department of Agriculture, responded perhaps somewhat disingenuously that, “Since he [Johnson] did not refer to anything in particular, I don’t know what he had in mind.”

The Mexican government also toughened its stance regarding current negotiations aimed at concluding a “sweetener” trade agreement that would increase access for Mexican sugar producers to the U.S. market in return for allowing American exports of high fructose corn syrup (HFCS) to enter Mexico freely.  This is a longstanding dispute that originated when a proposed side agreement to NAFTA capping Mexican sugar imports was never finalized. After rulings by international trade panels repeatedly declared illegal Mexican anti-dumping provisions aimed at HFCS, the Mexican Congress in January 2002 imposed a 20 percent tax on soft drink companies that use HFCS.  This effectively made imports of HFCS prohibitively expensive, which adversely affected the American corn industry while simultaneously establishing a strong incentive for the use of Mexican cane sugar in soft drinks.   American negotiators have suggested that the Mexican negotiators’ unwillingness to compromise is attributable to this boost in the domestic fortunes of the Mexican sugar industry.  The latest upsurge of agrarian protest can only have rendered the Fox administration less willing to make an already politically disadvantageous concession.

Seen in this light, the latest WTO challenge filed by the U.S. serves only to reinforce the point that the Bush administration is willing to fight tenaciously for market access for U.S. products.   The reason is obvious: President Bush has been under increasing domestic pressure from powerful agribusiness groups to force open the huge and potentially profitable Mexican market.  On May 5, Department of Agriculture officials met with U.S. farm groups, reassuring them that the government shared their concerns about trade with Mexico and stating that recently imposed trade restrictions were simply a ploy by the Fox government to shore up its domestic support ahead of legislative elections in July.  But farmers were not to be so easily placated.  Two weeks later, on May 16, seven agricultural producer groups sent a joint letter to President Bush accusing Mexico of “unilaterally renegotiating” NAFTA and calling for decisive action to rectify the situation.  More ominously, the president of the U.S. Corn Growers’ Association John Yoder obliquely suggested that the inability to resolve trade disputes with Mexico (particularly the long-running sugar / HFCS controversy) might lead to the evaporation of agricultural producers’ support for any future free trade agreements. 

Washington’s Response

Seen in this light, the latest WTO challenge filed by the U.S. serves only to reinforce the point that the Bush administration is willing to fight tenaciously for market access for U.S. products.   The reason is obvious: President Bush has been under increasing domestic pressure from powerful agribusiness groups to force open the huge and potentially profitable Mexican market.  On May 5, Department of Agriculture officials met with U.S. farm groups, reassuring them that the government shared their concerns about trade with Mexico and stating that recently imposed trade restrictions were simply a ploy by the Fox government to shore up its domestic support ahead of legislative elections in July.  But farmers were not to be so easily placated.  Two weeks later, on May 16, seven agricultural producer groups sent a joint letter to President Bush accusing Mexico of “unilaterally renegotiating” NAFTA and calling for decisive action to rectify the situation.  More ominously, the president of the U.S. Corn Growers’ Association John Yoder obliquely suggested that the inability to resolve trade disputes with Mexico (particularly the long-running sugar / HFCS controversy) might lead to the evaporation of agricultural producers’ support for any future free trade agreements. 

While the filing of the latest challenge announced on Monday does not directly respond to these concerns, and addresses only the issue of conflicting interpretations of WTO rules rather than NAFTA, it can nonetheless be considered the administration’s response to this intensive lobbying and the increasingly vocal discontent of U.S. agribusiness.  It is clear evidence that President Bush feels it is politically necessary to respond to this lobby by cracking down on perceived Mexican trade transgressions.  This judgment on the administration’s part should, however, be qualified by two additional observations.  First, President Fox is also under considerable domestic pressure on the issue of agricultural trade and is eager to shore up his increasingly faltering support at home.  Thus he may not be as willing to give way to U.S. pressure as he and other Mexican presidents have previously been.

Second, and perhaps more importantly, Washington’s aggressive and insensitive handling of trade disputes with Mexico has the potential to convince other Latin American nations—particularly Brazil, Venezuela, and Argentina, where the current governments have already expressed considerable skepticism as to the real benefits of free trade for their economies—that the benefits of the proposed Free Trade Area of the Americas lie entirely on the U.S. side.  Potential FTAA partners, especially the Lula government in Brazil, have repeatedly articulated their position that until the U.S. cuts back on billions of dollars of annual agricultural subsidies, free agricultural trade under the FTAA is not fair trade.  Brazilian officials quite rightly view the plight of Mexican agriculture over the last decade and the recent surge of domestic unrest there as a fate to be avoided.  If Washington is to assuage these fears, and convince other powerful hemispheric players that the FTAA is in their interest, it must first demonstrate that it can be responsive to the concerns of its trading partners with regard to agriculture.  This means negotiating with, and perhaps conceding to, Mexico City, and ending the guerrilla trade war of agricultural products that up to now has continued with no truce in sight.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being “one of the nation’s most respected bodies of scholars and policy makers.”

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June 24, 2003

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