NAFTA at 20: North America’s Free-Trade Area and Its Impact on Agriculture

02/20/2015

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Steven Zahniser, Sahar Angadjivand, Tom Hertz, Lindsay Kuberka, Alexandra Santos

More than 20 years have passed since January 1, 1994, when the North American Free Trade Agreement (NAFTA) was first implemented. On that date, NAFTA’s member countries—Canada, Mexico, and the United States—started a 14-year process in which they gradually removed thousands of barriers to intraregional trade, including all agricultural products traded between Mexico and the United States and nearly all agricultural products traded between Canada and the United States and between Canada and Mexico. Canada and the United States already had started to implement bilateral trade liberalization in 1989 as part of the Canada-U.S. Free Trade Agreement (CUSTA), which was then subsumed by NAFTA, so the year 2014 may be thought of as both the 20th anniversary of NAFTA and the 25th anniversary of CUSTA.
NAFTA has had a substantial impact on the integration of North America’s agricultural markets. Market integration is the extent to which one or more formerly separated markets have combined to form a single market. Integration is visible in increased cross-border flows of goods, services, capital, and labor. Trade in goods consists of not only final consumer products but also intermediate inputs and raw materials, as firms reorganize their activities around regional markets for both inputs and outputs, spurred in part by greater foreign direct investment (FDI). In addition, decisionmakers in both the government and the private sector continue to pursue a course of greater institutional and policy cooperation and coordination to encourage further market integration. Integration of North America’s agricultural markets, as fostered by NAFTA, offers many tangible benefits. In general, it enables agricultural producers and consumers in the region to benefit more fully from their relative strengths and to respond more efficiently to changing economic conditions. For producers, it opens new territories for the sale of their output, possibly allowing for the further exploitation of economies of scale; however, it also opens the door to new competition from producers in locations that were formerly isolated by tariff and quota barriers. In addition, the creation of a larger, single market gives producers access to potentially cheaper suppliers of inputs and creates new opportunities for FDI, as firms restructure their vertical and horizontal arrangements. For consumers, the formation of a unified market provides access to new varieties of food products and off-season supplies of fresh produce. Greater competition along the food supply chain is likely to make food more affordable, thereby expanding consumer purchasing power. This report examines the extent to which a single market has taken hold in North American agriculture, provides detail on intraregional trade in specific commodity groups, and describes ongoing efforts to advance the sector’s market integration and to establish new free-trade agreements (FTAs) with countries outside NAFTA. The assessment of market integration relies on a framework first presented in ERS’s 2005 NAFTA report (Zahniser, 2005). NAFTA at 20

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The report was originally posted here.