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Date: Fri, 12 May 1995 11:11:45 -0700 (PDT)
From: IATP <
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Subject: NAFTA & Inter-Am Trade Monitor 5/12
NAFTA & Inter-American Trade Monitor
Produced by the Institute for Agriculture and Trade Policy
May 12, 1995
Volume 2, Number 15
__________________________________________
Headlines:
- CANADIAN-U.S. WHEAT DISPUTE CONTINUES
- NAFTA COMPLAINT ON EXPRESS DELIVERY
- CHILE-NAFTA TALKS BEGIN
- ENVIRONMENTAL CHALLENGES LOOM
- SOME BENEFIT FROM PESO DEVALUATION
- CANADA-MEXICO TRADE GROWS
- G-7 PREPARES FOR JUNE SUMMIT
- MEXICAN DEBT NEEDS ACTION
__________________________________________
CANADIAN-U.S. WHEAT DISPUTE CONTINUES
In March, the National Association of Wheat Growers and U.S. Wheat
Associates released a study charging that the Canadian Wheat
Board's monopoly status uses price discrimination to make Canada
the price leader in many third-country import markets.
The study stated that the Canadian Wheat Board (CWB) charges
higher prices to Canadian, U.S. and some Asian buyers and lower
prices in markets such as Brazil, the Philippines, China, and South
Africa, and that this differential pricing has given Canadian wheat an
unfair competitive advantage. U.S. wheat growers succeeded in
getting government limits on Canadian wheat imports last year, and
have asked that the limits be extended.
The CWB is the world's single largest marketer of wheat. "Our
mandate," said Lorne Hehn, chief commissioner of the CWB, "is to get
the best dollar we can for the western Canadian farmer, and we focus
on marketing to the highest returning customers. However,
subsidized competition from the U.S. and the E.U. [European Union]
means that we often are faced with the choice of lowering our price
expectations or not doing the business."
The Canadian government and CWB responded critically to the
charges in U.S. wheat industry report, saying that some of the prices
reported in the study were just wrong. The authors of the study, Dr.
Barry Goodwin of North Carolina State University and Dr. Vincent
Smith of Montana State University, said the prices used might have
been wrong, but that the CWB lacks price transparency, so it is
difficult to determine the real prices.
The study criticizes Canada as the world price leader, offering
discounts that must then be matched by U.S. and EU price
adjustments and subsidies. Canadians disagree, saying that the U.S.
Export Enhancement Program subsidies reduce market prices in
targeted offshore markets, indirectly subsidizing U.S. farmers and
reducing the price paid for Canadian wheat and the return to
Canadian farmers. "In fact, the U.S. and the E.U., using billions of
dollars of taxpayer-funded export subsidies, must bear full
responsibility for undermining the price structure in many offshore
markets," said CWB commissioner Hehn. The CWB recently imposed
a ban on allegedly subsidized pasta from Italy, over protests of
Canadian importers of Italian pasta. CWB officials say the
EU has reintroduced export subsidies on pasta worth about US$40
per metric ton.
In early May, the Japanese government announced the opening of its
foreign food aid market to Canada and Australia. In the past, the $80
m
In related news, the loss of Canadian rail subsidies will cost Canadian
farmers millions in added freight costs, beginning on August 1. The
end of the so-called Crow Rate subsidy for grain transport is
mandated by the World Trade Organization. The sudden
end to the subsidy will add $21-29 to the cost of moving grain from
each acre of farmland and could drastically reduce the flow of
western grain to the port at Thunder Bay, Ontario. Canadian farmers
are expected to shift to lower-volume commodities such as canola,
flax seed, lentils or peas as a consequence of the freight increase.
"Flare-Up in Trade Dispute Between U.S., Canada," "Pricing Policies
Give C.W.B. 'Unfair Edge' in Export Markets," "Canada: U.S., E.U.
Subsidies Dictate Pricing Policies," MILLING & BAKING NEWS, May 2,
1995; Gregory S. Johnson, "Loss of Canada Rail Subsidy to Prove
Costly to Farmers," JOURNAL OF COMMERCE, 4/17/95; Leo Ryan,
"Canadian Importers of Italian Pasta Weigh Action Against Board's
Ban," JOURNAL OF COMMERCE, May 3, 1995; "Japan Seeks Canada
Wheat Bids in Market Once Limited to US," JOURNAL OF COMMERCE,
May 3, 1995.
NAFTA COMPLAINT ON EXPRESS DELIVERY
U.S. Trade Representative Mickey Kantor filed a complaint with the
Mexican government on behalf of United Parcel Service of America,
Federal Express Corp., Airborne Freight Corp., and other U.S. express-
delivery companies, claiming that the Mexican government does not
provide equal treatment for U.S. carriers in Mexico. This is
the first time the U.S. has charged that a U.S. company is being
treated unequally in Mexico. If the matter is not resolved during a
30-day consultation period, the U.S. could demand that a five-
member panel hear the case. If the panel rules in favor of the U.S.
firms, the U.S. could then impose sanctions on Mexican exports.
UPS says it is losing millions of dollars in Mexico as a direct result of
denial of permits to use full-size trucks to deliver packages and
letters within Mexico, although Mexican national firms are allowed
such permits. The company also opposes proposed Mexican
restrictions on the size and weight of packages delivered by foreign
carriers and restrictions on shipment times. Worldwide, UPS had
1994 revenue of $19.6 billion. UPS has 1,400 employees and an
investment of $120 million in Mexico.
In addition to complaints from express delivery companies, U.S.
truckers are concerned that Mexico is failing to equalize its trucking
rules under NAFTA. In Mexico, a trucking industry crisis sparked by
t
Robert Frank and Helene Cooper, "U.S. Claims Nafta Violations by
Mexico in Treatment of Express-Delivery Firms," WALL STREET
JOURNAL, April 27, 1995; "UPS Files First Nafta Complaint,"
FINANCIAL TIMES, April 28, 1995; "UPS Delivers a Message to
Mexico," BUSINESS WEEK, May 3, 1995; John Maggs, "US Begins Trade
Action on UPS' Mexico Complaint," JOURNAL OF COMMERCE, April 27,
1995; Kevin G. Hall, "Nafta Truckers Worry Mexico Isn't in
Compliance," JOURNAL OF COMMERCE, May 8, 1995.
CHILE-NAFTA TALKS BEGIN
Chile, the United States, Canada, and Mexico began technical talks in
Santiago in April, and high-level negotiations on Chile's accession to
NAFTA will begin in May, despite lack of U.S. Congressional approval
of "fast-track" negotiating authority. Chilean officials visiting
Washington in late April emphasized the importance of their
accession to NAFTA, calling Chile "the cornerstone for the Free Trade
Agreement of the Americas," and warning that if Chile is not
admitted to NAFTA on schedule, there will be widespread
disappointment in South America. Republican free trade supporters
refuse to support fast track authorization unless the Clinton
administration agrees to remove all labor and environmental
provisions from the agreement.
"Nafta/Chile Technical Talks Initiated," EL FINANCIERO, April 24-30,
1995; Nancy Dunne, "Chile Begins Nafta Talks Next Month,"
FINANCIAL TIMES, April 28, 1995; John Maggs, "Congress Frowns on
Clinton Plan to Expand Nafta," JOURNAL OF COMMERCE, April 5, 1995.
ENVIRONMENTAL CHALLENGES LOOOM
As the Border Environment Cooperation Commission (BECC) met for
the first time in Ciudad Juarez in late April, environmental challenges
arising under NAFTA went far beyond the BECC's limited agenda of
assessing and certifying environmental infrastructure projects along
the 2,000-mile U.S.-Mexico border. Other challenges include logging
in the United States, salt extraction in Mexico, and free trade in
hazardous wastes. Throughout Mexico, waste-water management
(both industrial and municipal) and solid-waste management are big
environmental concerns, as is air pollution in Mexico City.
BECC and the North American Development Bank (NADBank) were
created under the environmental side accord to NAFTA to focus on
border projects, such as wastewater treatment and municipal solid
waste. The environmental side accord also created the North
American Commission on Environmental Cooperation (NACEC), with a
more general mandate to maintain and improve environmental
protection.
% United States environmental groups now threaten to use NACEC to
challenge proposed changes in U.S. logging restrictions. The changes
are contained in a bill that lifts most restrictions on salvaging dead or
diseased timber. According to the Sierra Club, the bill would
"effectively allow clearcutting of timber anywhere that is claimed to
contain dead, diseased, or dying timber," and exempts many timber
sales from federal environmental laws. The Clinton administration
argues that NACEC was created to assure tough environmental
enforcement in Mexico, not to prevent weakening of U.S.
environmental protection laws.
% In Mexico, a proposal to build the world's largest salt extraction
plant in the Vizcaino Desert Biosphere Reserve is also under attack
by environmentalists. Gray whales, who migrate from U.S., Canadian,
and Russian waters to the Vizcaino inlets each year to breed, would
be threatened by the development, as would other species.
Exportadora de Sal (ESA), an industrial salt producer co-owned by
the Mexican government (51 percent) and Mitsubishi, says the salt
factory will produce 500 jobs producing six million tons of salt for
export yearly. Critics maintain that only 200 permanent jobs will
result, and that the area's eco-tourism and fishing industries will be
severely damaged, along with the eco-system. Mexico's
environmental agency, the National Ecology Institute, rejected the
salt extraction plan, but ESA still intends to proceed.
% A proposal currently before the Mexican Congress would prohibit
importation of hazardous waste for recycling. The proposal is
opposed by ProAmbiente, a Mexican recycler, which says it may go
bankrupt if it loses the business it now has in recycling U.S.
hazardous wastes. Mexican law already prohibits importation of
hazardous waste into Mexico for storage and final disposal, and
requires return of much of the hazardous waste generated by
maquiladoras to the country of origin, usually the United States.
Advocates of legal change to allow free trade in hazardous waste
argue that the cost of returning wastes to the U.S. leads to illegal
dumping, and that allowing free trade in hazardous wastes could be a
boost for the Mexican disposal industry. Although that industry
currently lacks capacity to handle all of the hazardous wastes
generated within Mexico, proponents of free trade in hazardous
wastes say that opening Mexico to imported wastes would make the
Mexican disposal industry larger, more efficient, and more
prosperous.
Kevin G. Hall, "Nafta Environment Group Holds 1st Meeting Today,"
JOURNAL OF COMMERCE, April 21, 1995; John Maggs, "Logging Flap
Spotlights Nafta Agency," JOURNAL OF COMMERCE, April 17, 1995;
New York Times, April 27, 1995; Grupo de los Cien advertisement,
NEW YORK TIMES, May 10, 1995; David E. Eaton, "Free Trade in
Hazardous Waste: Business and Environment Can Benefit," TWIN
P
SOME BENEFIT FROM PESO DEVALUATION
During the first quarter of 1995, the Mexican government approved
the opening of 250 new maquiladoras, according to the Commerce
Ministry (Secofi). While many Mexican businesses have suffered
severe losses in the current economic prices, maquilas are poised to
take advantage of lower labor costs. Only a small fraction of the raw
materials used by the maquilas are produced in Mexico.
While Mexican textile companies, many based in maquilas, are
successful in foreign markets, Mexican textile imports, both legal and
contraband, make up about half of the domestic market. The 35-
year-old Milyon textile company is one of the world's 30 largest
manufacturers of non-woven, disposable cloth. Until this year, the
company had exported about 30 percent of its product. Export
orders boomed and domestic demand fell with the devaluation of the
peso, so this year Milyon will export about 60 percent of production.
"Government Approves 250 New Maquiladoras," EL FINANCIERO,
April 24-30, 1995; Guadalupe Hernandez Espinosa, "A Niche of Their
Own," EL FINANCIERO, April 3-9, 1995.
CANADA-MEXICO TRADE GROWS
During 1994, bilateral Canada-Mexico trade grew by 22 percent to
C$5.5 billion, with Canadian exports to Mexico climbing by 27 percent
(to C$1 billion) and Mexican exports to Canada increasing by 20
percent. Canadian direct investment in Mexico increased from $529
million in 1993 to C$1.2 billion in 1994. Despite the current
Mexican economic crisis, Canadian exports to Mexico increased to
C$189 million in January and February, up from C$152 million
during the same months in 1994.
Leo Ryan, "Canadian-Mexican Talks to Focus on Trade, Energy and
Nafta," JOURNAL OF COMMERCE, April 27, 1995.
G-7 PREPARES FOR JUNE SUMMIT MEETING
Finance ministers and heads of central banks in the world's seven
leading industrial nations (G-7: the United States, Britain, France,
Germany, Japan, Italy, and Canada) met in Washington in late April,
and disagreed strongly over currency management. The weakening
of the U.S. dollar was criticized by other participants in the meeting,
though a vague final declaration called on all to "strengthen their
efforts" to reverse the dollar's fall. Other disagreements included
criticism of the Mexican bailout, and particularly of Washington's
arm-twisting to obtain backing for a large International Monetary
Fund (IMF) commitment.
The G-7's annual summit, scheduled for June in Halifax, Canada, has
an agenda that includes reform of the IMF and World Bank,
international trade, economic growth, job creation, the global
information highway, nuclear safety, and the environment. Trade is
likely to be a contentious issue, but the seven nations are already
near a consensus on changes in the IMF and World Bank, including a
call for a new emergency lending facility and stepped-up IMF
surveillance of the world's economies, particularly those in
emerging markets. Both changes are responses to the December
collapse of the Mexican peso and economy.
David E. Sanger, "As Wealthy Nations Meet, the New Tone is Divisive,"
NEW YORK TIMES, April 25, 1995; David E. Sanger, "U.S. and 6 Allies
Vow New Efforts to Revive Dollar," NEW YORK TIMES, April 26, 1995;
Rose Umoren, "IMF, World Bank Reform Tops June G7 Summit
Agenda," INTERPRESS SERVICE, May 2, 1995.
MEXICAN DEBT NEEDS ACTION
Some of Mexico's 31 states are on the edge of bankruptcy, as 100
percent interest rates make it impossible for states and local
communities to repay approximately $4 billion in public works
project loans. Mexican states and municipalities take out commercial
bank loans at variable interest rates, and do not float government
bonds. Mexican President Ernesto Zedillo announced a $2.9 billion
rescue program to allow states to restructure their loans, pre-paying
part of the capital and stretching out repayment for as long as
eight years. The four opposition governors criticized Zedillo's plan as
intrusive and as "an aspirin" that will continue the states'dependency
on the central government.
Frustration at cuts in financial support from Mexico City led the
opposition Partido Accion Nacional (PAN) mayor of Ciudad Juarez to
erect his own toll booths at the bridge to El Paso, Texas for three
days, until he was arrested by federal authorities. The PAN is
leading demands for decentralization and opposes the federal
government's firm hold on income from such government projects as
hydroelectric dams and resorts. States have little taxing authority
and must rely on the federal government for 80 percent of their
funding. That funding has been cut by 14 percent during the current
crisis.
The federal government may need to re-negotiate its foreign debt, as
the international bailout funds barely cover payments due. Mexico is
scheduled to repay $10.5 billion in long-term debt, $8 billion in
short-term debt, the accumulated current accounts deficit (about $2
billion) and more than $14 billion in treasury bills. The treasury
bills, which are sold to investors on the Mexican stock exchange, are
not renegotiable, but the $18.5 billion in long- and short-term debt
may be negotiated with the international private banking sector.
Anthony DePalma, "States in Mexico Trying to Avoid Bankruptcy,"
NEW YORK TIMES, May 10, 1995; Stanley Reed, "Mexico: A New
Rumble of Revolt," BUSINESS WEEK, April 24, 1995; Eduardo Molina y
Vedia, "Experts Predict New Renegotiation of Foreign Debt,"
INTERPRESS SERVICE, May 3, 1995.
__________________________________________
Produced by the Institute for Agriculture and Trade Policy, Mark
Ritchie, President. Edited by Mary C. Turck. The NAFTA & Inter-
American Trade Monitor is available free of charge to Econet and
IATPNet subscribers. For information about fax or mail
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Agriculture and Trade Policy, 1313 5th Street SE, Suite 303,
Minneapolis, MN 55414. Phone: 612-379-5980; fax: 612-379-5982;
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[email protected]. For information about IATP's contract research
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