NAFTA has helped Mexico, despite broad opposition

By THE ECONOMIST

It was in a valley somewhere in central Mexico at least 5,000 years ago that maize (corn, to Americans) was domesticated. Many Mexicans see the crop as part of their national patrimony, much as potatoes are to Peruvians or pasta is to Italians.

So it may be understandable that when, on Jan. 1, import tariffs on maize (along with beans, sugar and milk) finally were eliminated, many Mexicans felt a twinge of regret. The end of the tariffs marked the culmination of a 14-year transition to free trade among Mexico, the United States and Canada under the North American Free-Trade Agreement (NAFTA).

Few Americans have warmed to NAFTA -- Hillary Clinton, whose husband Bill fought for its ratification when president, has promised to review it if she is elected. But only the most ardent anti-globalization activists would argue that it has not brought benefits to Mexico (and thus to its northern neighbor). Since 1994, Mexico's non-oil exports have grown fourfold, while the stock of foreign direct investment has expanded by 14 times. Even the country's farm exports to its NAFTA partners have risen threefold.

Nevertheless, many Mexicans are no more enthusiastic about the treaty than are people in the United States. Opposition politicians, from both the center-left Party of the Democratic Revolution and the formerly ruling Institutional Revolutionary Party, argue that NAFTA should be renegotiated. Peasant farmers are to stage a demonstration in Mexico City Thursday to which they hope to attract 100,000 people (although, as is customary, many of these will be bused in and paid to attend).

In practice, little changed Jan. 1. Tariffs on maize have been dropping gradually since 1994 (when they were more than 200 percent). Nearly all maize imports already entered tariff-free under government import quotas. Most of the imports are of yellow corn, which is used to feed livestock, while Mexico produces mainly white corn. Even so, without cheap imports, Mexicans would pay more for their daily tortillas. They were reminded of that a year ago, when a temporary shortfall in imports combined with distribution snags to cause the price of tortillas to soar.

Despite the long transition to free trade, little has been done to prepare small-scale farmers. Procampo, a government program meant to provide a minimum income for every farmer, was hijacked years ago by agribusiness, with a big slice of its annual budget of $1.4 billion going to large-scale farmers in the north. Four-fifths of farmers have fewer than five hectares (12 acres), according to the ministry of agriculture. Most are subsistence farmers who rely on maize -- a "recipe for poverty," according to Luis de la Calle, who was one of Mexico's NAFTA negotiators. The ministry estimates that only 6 percent of farms are "highly efficient and profitable."

Nevertheless, the Mexican maize crop has grown from 18 million tons before NAFTA to 24 million tons last year. This, said Jaime Serra Puche, the trade minister when NAFTA was negotiated, is a problem rather than a success. Growing maize efficiently requires lots of water, large fields and mechanization -- in other words, Iowa or Saskatchewan rather than Oaxaca.

Subsidies have caused Mexican farmers to stick to maize instead of switching to more profitable and labor-intensive crops, such as fruits and vegetables, Serra argued. Alberto Cárdenas, the minister of agriculture, said he is trying to streamline and simplify the subsidy system and direct more of the money to poorer farmers. Others are skeptical that this is happening.

Advocates for subsistence farmers claim that Grupo Maseca, a big tortilla maker, controls 85 percent of the market for maize flour.

"We are not against markets, we are against monopolies," said Victor Suárez, one of the protest organizers. Cárdenas said that the maize market is competitive, but other officials express worries about market concentration.

Fortunately for the government, the tariffs have been removed while prices are at record levels. With maize at $5 a bushel, thanks to a subsidized boom in its use to make ethanol in the United States, even the least-efficient subsistence farmer can make money. Open markets benefit the millions of poor Mexicans who are not farmers but consume lots of maize. But few of them seem to realize this.