From iatp@igc.apc.orgSat Dec 16 10:43:49 1995 Date: Fri, 12 May 1995 11:11:45 -0700 (PDT) From: IATP To: Recipients of conference 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. 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