Policy Changes resulting from NAFTA
Mexico: Previously, Mexico imposed a seasonal tariff of 15 percent on soybeans. Under NAFTA, Mexico immediately reduced this tariff to 10 percent and shortened the dutiable season from August 1-January 31 to October 1-December 31. Mexico phased out this tariff January 1, 2003. Mexico had tariffs of 15 percent on soybean meal, 10 percent on crude soybean oil, and 20 percent on refined soybean oil. These restrictions were also phased out January 1, 2003.
Canada: Prior to the Canada Free Trade Agreement (CFTA), Canada lacked tariffs on soybeans and soybean meal. However, there were tariffs of 7.5 percent on soybean oil and 10 percent on other vegetable oils. Under CFTA and NAFTA, Canada eliminated its tariffs on selected imports over a 10-year period that concluded January 1, 1998. Under NAFTA, Canada immediately eliminated its tariffs on soybean oil and other oil imports from Mexico, while maintaining the successive tariff elimination with the United States established by CFTA.
NAFTA's impact on trade in oilseeds and related products is substantially different for U.S.-Canada trade than for U.S.-Mexico trade. With respect to U.S.-Canada trade, NAFTA has contributed to increased "two-way" or intra-industry trade in processed goods, such as vegetable oil and soybean meal. With respect to U.S.-Mexico trade, NAFTA has led to increased U.S. exports of soybeans and soybean oil but decreased U.S. exports of soybean meal, as trade more closely reflects the relative prices of the commodities.
When NAFTA was first implemented, the Mexican oilseed industry was striving to meet the protein requirements of a growing livestock sector, even as domestic oilseed production continued to decline. By 1994, Mexico’s soybean production had fallen by nearly 50 percent to an estimated 0.5 million tons, down from a high of about 1 million tons in 1989. The expansion of the livestock sector, combined with Mexico’s stable trade and the new investment environment encouraged by NAFTA, generated growth in the Mexican oilseed crushing industry.
NAFTA provided Mexico with improved access to U.S. soybean supplies to help farmers meet the demands of their growing livestock industry. This access, combined with Mexico’s close proximity to the United States and the support of credit guarantees provided under the U.S. Department of Agriculture’s GSM-102 Export Credit Guarantee Program has helped to solidify the U.S. position as the dominant supplier of soybeans to Mexico.
Since 1992, U.S. soybean exports to Mexico have increased 104%, soybean meal exports declined 4%, but soybean oil exports have risen 646%. U.S. soybean exports to Canada have increased 740%, soybean meal exports increased 86%, and soybean oil exports have increased 585%. The value of the exports to Mexico rose 75 percent to $969 million and the value of the exports to Canada rose 143% to $396 million. U.S. oilseed imports from Mexico are negligible and consist primarily of sesame seed.
Mexican imports of U.S. oilseeds dropped 8 percent in volume in 1995 in the wake of the peso crisis. The recession that followed in Mexico caused difficulties for the poultry, hog, and dairy sectors. The sharpest decline in imports occurred during the first half of 1995. Mexican soybean imports were also constrained in early 1995 because a surge of imports during the final quarter of 1994 had built Mexican stocks. Confusion over GSM credit payments and strong competition from sunflower and soybean oils contributed to the decline in Mexican soybean imports. Low prices for oilseeds during the first half of 1995 led Mexican buyers to hedge soybeans, preventing a greater drop in Mexican imports.
As Mexico's economy recovered from the devaluation, revitalized consumer demand for meats raised Mexican imports of U.S. soybeans. In 1996, Mexican oilseed imports from the United States swelled 29 percent from the devaluation-depressed level of 1995, while higher prices raised the value of imports 54 percent.
Growth in U.S. oilseed exports to Mexico have increased ever since the implementation of NAFTA. Soybeans accounted for all the growth in Mexican oilseed imports from the United States. Mexico has also imported a steadily increasing volume of Canadian canola seed.
U.S. vegetable oil exports to Mexico have increased over 500% under NAFTA. In 1995, despite excellent crush margins, small Mexican processors were hurt by the peso devaluation, short domestic oilseed supplies, and larger imports of U.S. sunflower and soybean oils. In addition, consumption of meat declined more than vegetable oil use, limiting the demand for protein meals for animal feed. Thus, companies that rely on domestic processors to fill their vegetable oil needs were encouraged to purchase directly from the United States. Sunflower oil benefited greatly from prices that were competitive with vegetable oils during 1995. In 1996 U.S. vegetable oil exports have gained an increasing share of the Mexican import market, while greater canola seed imports have supplanted imports of canola oil from Canada. Increasing consumption, declining tariffs, and larger U.S. vegetable oil supplies have spurred annual growth in Mexican imports.
Although generally not attributable to changes in tariff structure, U.S. soybean and soybean product exports to Canada increased from $163 million in 1992 to $396 million in 2002. However, U.S.-Canadian soybean and soybean product commerce has benefited from free trade. Similarly, Canadian shipments of vegetable oil (primarily canola) to the United States rose from 154,000 tons in 1990 to 599,000 tons (valued at $430 million) in 1998.
Canada is among the largest markets for U.S. soybean meal, representing 15 percent of total U.S. exports with a 2002 value of $208 million. However, U.S. soybean exports to Canada are smaller and fluctuate depending on Canada's domestic harvest and crush margins.
The United States is the largest importer of Canadian protein meals, oilseeds, and vegetable oils. U.S. imports of oilseed meals from Canada have nearly quadrupled since 1990, with the United States accounting for an overwhelming share of Canada's total meal exports. Canola and canola products constitute most of U.S. oilseed and product imports from Canada.
Trade Issues
There have been no major trade issues over oilseeds or products.
Impacts of NAFTA on Oilseed Trade
The reduction of soybean tariffs under NAFTA increased U.S. soybean exports to Mexico somewhat over what would have occurred in absence of the agreement. Mexican imports of other oilseeds are expected to decline slightly because of the relatively lower protection of soybeans under NAFTA. Mexican oilseed production has plummeted under import pressure, although chronic pests and reduced government farm support have also eroded the incentives for domestic production. NAFTA is estimated to have had little effect on the volume of U.S. soybean meal exports to Mexico, but the tariff reduction for soybean oil is estimated to have increased U.S. soybean oil exports to Mexico by 5-10 percent.
Under NAFTA, Mexico has increased its share of edible oil from crushed imported oilseeds. This trend was boosted by slightly greater tariff reductions for soybeans than for competing oils and meals. The majority of Mexican oil consumption consists of oil crushed from imported oilseeds rather than imported oils.
Overall, NAFTA does not appear to have had a major impact on U.S.-Canadian oilseed trade, as this trade was quite liberal even before CFTA. However, the bilateral trade in vegetable oils has been affected. The reduction of vegetable oil tariffs increased U.S. vegetable oil exports to Canada, and NAFTA is expected to have had a slight positive effect on the volume of U.S. soybean meal exports to Canada. However, this depends upon the increased volume of livestock feeding in Canada relative to its domestic meal supply, since there was no duty on soybean meal prior to NAFTA. NAFTA is estimated to have slightly increased U.S. imports of Canadian vegetable oils. The agreement has had little effect on the volume of Canadian oilseed and oilseed meal exports to the United States, with a small increase in oilseed meal exports offsetting a similar decrease in oilseed exports.
NAFTA Background
Implementation of NAFTA began on Jan.1, 1994. This agreement will remove most barriers to trade and investment among the United States, Canada, and Mexico.
Under NAFTA, all nontariff barriers to agricultural trade between the United States and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of 5 to 15 years. All agricultural provisions will be implemented by the year 2008.
The agricultural provisions of the U.S.-Canada Free Trade Agreement, in effect since 1989, were incorporated into NAFTA. Under these provisions, all tariffs affecting agricultural trade between the United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed by Jan. 1, 1998