TRADE NEWS BULLETIN Volume 2 Number 94 Thursday, May 27, 1993 ________________________________________________________ NAFTA News Summary ________________________________________________________ N.Y. REP CALLS FOR SIDE DEAL ON EXCHANGE RATES The United States, Canada and Mexico need to negotiate a fourth NAFTA side agreement to coordinate exchange rates, said Representative John LaFalce (D-New York). Speaking at a House Small Business Committee hearing last week, LaFalce said the North American Free Trade Agreement contains no mechanism for coordinating U.S.-Mexican monetary policy or even "consultations or corrective measures if exchange rates are used to promote competitiveness." LaFalce said it is "imperative" that NAFTA include an additional accord to account for "the importance and impact of exchange rates on the operation of NAFTA ... We must anticipate the problems caused by sharp changes in the currency alignments." LaFalce said Mexico may substantially devalue its peso in an attempt to counter its growing trade deficit, which could reach $27 billion this year. Such a devaluation would, according to AFL-CIO economist Gregory Woodhead, put a "downward pressure" on wages in the United States and Mexico and provide an additional incentive for U.S. companies to shift operations to Mexico to take advantage of lower production costs. John Williamson, an economist with the Washington-based Institute for International Economics, estimates that Mexico's peso is currently overvalued by nearly 10 percent. He recommends that Mexico gradually depreciate its peso by at least 10 percent per year to compensate for the overvaluation and keep up with inflation. Mexico has been letting the currency depreciate by only four percent annually. Source: Richard Lawrence, "Exchange-Rate Policy Urged as One of NAFTA Side Deals," JOURNAL OF COMMERCE, May 21, 1993. ________________________________________________________ GATT News Summary ________________________________________________________ CHINA WILL ACCEPT GATT FARM RULES, CLINTON TO SEEK MFN China has pledged to abide by all agriculture policies emerging from the Uruguay Round of the General Agreement on Tariffs and Trade if it is granted membership to the world trade body. Gu Yongjiang, a Chinese foreign trade official, told GATT officials this week that China does not seek any special exemption from global farm trade rules. A GATT Working Party, assigned to decide whether to renew China's membership, welcomed China's assurances on agriculture policy. But the members said they would have more questions after China releases a detailed report on the status of Chinese agriculture. The report will include the amount of subsidies China allocates to its farmers each year. China was a founding member of GATT in 1947 but dropped out two years after its communist revolution. It has been pending membership renewal since 1987. The Working Party, led by the United States, includes GATT officials and representatives from Canada, Japan, New Zealand, Australia, the European Community, Argentina and the Nordic bloc. Meanwhile, President Bill Clinton announced today he would seek a one-year renewal of Most Favored Nation (MFN) trade status for China. Clinton recently received a letter from the U.S. National Grain and Feed Association urging a renewal of MFN for China with little or no conditions. "If MFN status is denied or heavily conditioned, China no doubt will find other suppliers and our largest wheat market will be lost," the letter stated. A Chinese trade delegation told U.S. Agriculture Department officials recently that restrictions on their trade status would hinder Sino-U.S. grain sales. China imports a total of $25.7 billion worth of U.S. goods. Sources: "Farming Today," UPI, May 26, 1993; "U.S. Grain Merchandisers Ask No Strings on China MFN," REUTER, May 26, 1993; Tony Walker, "Review Makes China a Most Fazed Nation," FINANCIAL TIMES, May 25, 1993; P.T. Bangsberg, "China Expects Some Consensus, But Hard Bargaining in GATT," JOURNAL OF COMMERCE, May 25, 1993. ________________________________________________________ EC GRANTS FRENCH FARMERS COMPENSATION French farmers won concessions for land set-a-side and production quotas during EC farm price negotiations in Brussels yesterday. The new EC agreement will increase aid to French farmers by 12 Ecus ($14.4) per ton on cereals, providing they participate in the land set-a- side program. Farm ministers agreed to a 20 percent permanent land set-a-side for French producers and 18 percent for British producers. Farm prices for cereals, milk and beef will be reduced in line with last year's reforms to the Common Agriculture Policy (CAP). Milk quotas will be raised by .6 percent, rather than remaining unchanged as the European Commission had originally sought. "We have reached a compromise which appears really positive for France and Europe," said French Farm Minister Jean Puech. EC Farm Commissioner Rene Steichen said the compromise price and aid package was in line with 1992 farm reforms and would not exceed the EC's 1994 budget, which is set at 36.5 billion Ecus ($44 billion). Negotiators expect the new compromise to prompt France to be more open in world trade talks "As long as we talk and get along, there are some hopes to see European and international negotiations develop favorably," said Puech. However, France still insists that an oilseeds deal, which would limit EC production to 5.128 million hectares, be kept separate from GATT negotiations. France also made it clear that no link should be made between the oilseeds accord and the long disputed issue of U.S. exports of corn gluten to the European Community. France wants the EC to limit U.S. exports in order to protect producers. French farm unions welcomed the agreement on farm prices. "The result is encouraging. France has managed to force the European Commission to admit that the reform of the Common Agricultural Policy had major flaws," said a spokesperson for the young farmers' union, CNJA. The unions are urging the government to keep CAP reform and oilseeds talks separate. EC farm ministers are scheduled to vote on the accord June 9. Sources: "French Farmers See EC Farm Deal as Partial Success," REUTER, May 27, 1993; "EC Farm Deal Aids Climate for Oilseeds Pact," REUTER, May 27, 1993; "France to be More Open in World Trade Talks," REUTER, May 27, 1993; Peter Blackburn, "EC Farm Price Deal Clears Way for GATT Advance," REUTER, May 27, 1993. ________________________________________________________ Produced by: Kai Mander and Gigi Boivin The Institute for Agriculture and Trade Policy (IATP) 1313 Fifth Street SE, Suite #303, Minneapolis, MN 55414-1546 USA Telephone:(612)379-5980 Fax:(612)379-5982 E-Mail:kmander@igc.apc.org ________________________________________________________