NAFTA Renegotiation: What is NAFTA?

Corn pile
Used under creative commons license from j_regan

This blog is part of a series exploring NAFTA and agriculture. The series is based on the larger paper: NAFTA Renegotiation: What’s at stake for farmers, food and the land?

 

What is NAFTA?

The North American Free Trade Agreement (NAFTA) was agreed to by the U.S., Mexico and Canada in 1992, ratified by the U.S. Congress in 1993, and became enforceable in 1994. The Agreement has 22 chapters, grouped into eight sections.1 Those sections cover trade rules on a variety of goods, including textiles, agriculture and food safety, and energy; technical standards for traded goods; government procurement; protection for investors and trade in services; intellectual property; notification of new laws and how to handle trade disputes.

NAFTA was the first of its kind in several ways: the first trade agreement among countries at very different levels of economic development; the first to include controversial private arbitration panels that allow foreign corporations to sue governments to challenge actions that impede their potential future profits; and the first trade agreement to include side agreements on labor and environment. It was the template for the U.S.-Central America Free Trade Agreement (CAFTA), the U.S.-Korea Free Trade Agreement, and the defeated Trans-Pacific Partnership (TPP), among others, as well as dozens of other agreements negotiated by Canada and Mexico. Each of the trade deals that followed included additional elements that strengthened corporations’ ability to move production and investments in all participating countries.

What Promises Were Made To Farmers?

During the NAFTA debate in the early 1990s, U.S. farmers and ranchers were promised that they would export their way to prosperity but that didn’t happen. A U.S. Department of Agriculture fact sheet at the time pledged that NAFTA would “boost incomes in Mexico and increase demand for a greater volume and variety of food and feed products” from U.S. farmers.2 The USDA fact sheet vowed that U.S. farmers would gain from “higher agricultural export prices” among other benefits. An International Trade Commission analysis advising Congress in 1993 downplayed the impact NAFTA would have on agriculture, predicting only “a minimal effect on overall U.S. agricultural production and employment,” aside from some increases in grain and meat exports, and a slight increase in fruit and vegetable imports.3 The same ITC report predicted that U.S. Midwest soy and corn farmers would benefit from increased exports to Mexico.

The General Accounting Office (now Government Accountability Office) concluded that NAFTA would “reduce unauthorized Mexican migration to the United States in the long run...”4 President Bill Clinton made a similar argument at the time stating: “By raising the incomes of Mexicans, which this (NAFTA) will do, they’ll be able to buy more of our products and there will be much less pressure on them to come to this country in the form of illegal immigration.”5 Conservative think tanks like the Peterson Institute for International Economics joined in the NAFTA cheerleading through opinion pieces in the media that exclaimed “Everybody Wins,” and predicted strong long-term growth in Mexico’s per capita income with associated declines in immigration to the U.S.6

These false promises, supported by a compliant media, gave Congressional backers the fuel they needed to narrowly pass NAFTA in 1993. Whether economic gains for farmers or reduced migration from Mexico, NAFTA’s promises of prosperity have proven to be empty ones.

What is the relationship between NAFTA, the WTO, and the Farm Bill.

The rules set in NAFTA (1994), the WTO (1995) and the 1996 Farm Bill are mutually reinforcing. The WTO set a foundation of international trade rules for more than 160 countries. The WTO’s Agreement on Agriculture set international trade rules on agriculture policy, including the types of farm programs that are allowed (non-trade distorting), tariff levels on agricultural goods and how those tariffs may be applied. If NAFTA were eliminated, the trade rules set at the WTO would be the fallback.

The 1996 Farm Bill passed by Congress was designed to comply with trade rules agreed to in NAFTA and the WTO. It stripped away the final remnants of U.S. supply management programs (with sugar the exception), which had intentionally limited production for the purpose of ensuring fair prices to farmers. The 1996 bill was given a slick market-friendly name, “Freedom to Farm” and its elimination of supply management was sold to farmers as necessary for expanding U.S. export markets. That expanded access, the bill’s supporters claimed, would itself ensure fair prices to farmers. This did not turn out to be the case. “Freedom to Farm has really positioned the U.S. very well to take advantage of the opportunities in the world market,” said a Cargill executive shortly after the bill was passed.12

Shortly following the passage of the 1996 Farm Bill, U.S. farm prices predictably plunged following the expanded production—and tens of millions of dollars of emergency payments were needed to prevent many farmers from losing their farms.13 Those low prices, coupled with NAFTA’s and the WTO’s requirements to lower tariffs, facilitated the rapid growth of agricultural export dumping (exporting below the cost of production) by U.S. agribusiness over the next decade.14 Many Mexican farmers who were particularly hard hit by a flood of U.S. corn exports eventually emigrated to the U.S. to work on farms and in meat packing plants. In 2002, the Farm Bill took steps to convert the emergency payments for farmers into commodity program farm subsidies. These programs, further adapted in ensuing Farm Bills, support farmers when prices drop due to over-production, and continue today in the form of revenue-insurance programs.