Trade Developments Detailed in ERS Report

April 18, 2000

USDA’s Economic Research Service has issued a lengthy report detailing trade developments under the North American Free Trade Agreement and the U.S.-Canada Free Trade Agreement. The United States has experienced somewhat mixed results over the years, but Canada should enjoy a surge in beef exports to the United States as herds are rebuilt.

U.S. beef imports likely will increase even more in coming years because of U.S. investment in the Alberta slaughter industry, says ERS. Two U.S. firms own the two largest slaughter plants in Canada, and both operate at less than full capacity.

Large inventories led to increases in Canadian slaughter from 1994-98, but a larger number of heavier animals were exported to the United States for slaughter. The result was that U.S. beef imports from Canada doubled in value and expanded 97% in volume between 1993-98, and U.S. beef trade reverted to a negative balance.

U.S. beef exports to Mexico increased dramatically in 1994, 85% by volume, as lower duties and optimism about the Mexican economy stimulated an upgrading of diets. However, the economic collapse in December 1994, high debt loads and "diminished expectations" forced Mexican consumers to reallocate their household budgets.

Since 1996, trade has rebounded, according to the report. In 1998, U.S. beef exports to Mexico were more than three times their 1993 value despite lower U.S. prices. Some recovery started in 1996, but a severe drought in northern Mexico encouraged increased domestic slaughter in 1995-96. Initially, that pressured U.S. exporters, but ultimately it paved the way for increased U.;S. Beef exports in 1997-98. In 1998, the volume of U.S. beef exports to Mexico was more than twice its 1993 level.

The greatest impact on beef trade probably originates from the elimination of quotas between the United States and Canada, the report says. The elimination of Mexican tariffs on U.S. and Canadian beef also has been significant.

"It is difficult to quantify how much NAFTA boosted trade because of other economic factors," says ERS. Calculating Canada’s share of the quota under the U.S. Meat Import Law indicates that Canada would have been allowed to ship 130-135 million pounds in 1994.

"If the World Trade Organization tariff rate quota had included Canada, that country would have been able to ship about 145 million pounds annually to the United States during 1994-98," the report continued. "This is about one-fourth the actual level of imports form Canada for that period, indicating higher imports due to NAFTA."

Mexico’s elimination of its tariff on U.S. beef is responsible for an increase of about 10-15% in the annual quantity of U.S. beef exports to Mexico between 1994-98. Had the most favored nation tariff been in place during the peso devaluation, the quantity of U.S. beef exports would have been even lower during the 1995 recession.

"The recovery of U.S. beef exports over the last several years is more closely linked to factors other than NAFTA, such as Mexican herd reductions forced by the 1995 drought and strong economic growth starting in 1996," the report says. In 1998, U.S. beef exports to Mexico were more than three times the pre-NAFTA level.

Included in the entire 83-page report are livestock and livestock products; grains, oilseeds and products; other crops such as dry beans, cotton, sugar and sweeteners; vegetables, citrus and products and fresh fruit. The report is available by clicking here.