Chantal Line Carpentier, Ph.D

Head,

Environment, Economy and Trade

NAFTA CEC Efforts to Examine the Mexican

Experience

Commission for Environmental Cooperation

• Canada, Mexico, United States created CEC to better protect our shared environment

• NAAEC – parallel agreement to NAFTA

Council

Secretariat

JPAC

CEC Structure

9 years experience in Ex post assessment…going into Ex ante

• CEC Framework, 1999

• Council Public call for Papers

• First Symposium, World Bank, 2000

• Second Symposium 2003, with UNEP

–Mexico City March 25-28

–Focus on Agriculture and Energy

CEC Efforts: > 30 Papers Commissioned

• 23 include Mexico

–13 compared to 2 other countries

• Fisheries,industrial pollution, transboundary hazardous waste, electricity, RPS, environmental laws (2), transport corridors, cement, wheat, cattle, and livestock.

–5 compared to Canada or US

• Stonewashing, wastewater treatment, industrial, hog, maize, tomatoes

–5 specific to Mexico

• Grains, Sonora agriculture and aquifers, manufacturing, forestry, maize.

Lessons from North

America and Mexico

Are they transferable?

In joining NAFTA, Mexico joined:

• Two developed economies, and though Mexico is a developing country and a new OECD member, it addresses many similar challenges facing other developing countries;

• A superpower and middle power country, Mexico being a G77 country, the region mirrors the geopolitical range of countries;

• Countries with large intra-regional trade – now 1/3 of NA Trade is among NAFTA partners

General Lessons

• Pollution havens are not widespread;

• Some border communities have suffered more air pollution due to increased road freight transport to move an increasing amount of goods across the two borders;

• Scale effects are leading to marginal increases in pollution and CO2 especially from petroleum, base metals, and transportation equipment sectors;

• No evidence of race to the bottom.

Policy Lessons

• Trade liberalization on the environment depends on mitigating policies in place

– especially during the economic adjustment period following trade liberalization;

• These policies can be informed by ex ante analysis that are themselves informed by ex post analysis of previous agreements;

• To offset the increasing scale effects on the environment,and competitive pressures to reduce needed investment in infrastructure and enforcement of environmental laws.

• Best achieved in an open, transparent, and inclusive manner.

Lessons from North

America in

Agriculture?

Trade and Environment in NA

NAFTA- Environmental side agreement Secretariat in Montreal created (CEC)

GATT MX CUSTA NAFTA GATT/ WTO UR starts joins CA+US CA+US+MX WTO New Round in effect in effect in effect starts 1986 1987 1988 1994 1995 2001

MX joins OECD

Mexican Δ Planted Area and Prices

GATT 89-93 Area NAFTA Area

Maize Total 21% 9% -1% -44% Irrigated 40% -40%Beans Total 41% 24% -3% -26%

Irrigated -34%Sorghum, wheat, soybean,rice

-25-67% -35-67%

Price

Import of sorghum up 3.3X and soybean 1.2 X

Price

Trade Theory 101 – Assumes Perfect Competition and No Externalities

Competitive environment?  • 9 multinational represent 46% of maize import from the US to Mexico

• 11 agrochemical companies represent 78% of the Mexican market

• 4 firms control 81% of US and Canadian Cattle and Beef market

• 3 firms control 80% of US and Canadian Corn market

• Trends in concentration of production on few large farms and regions,

• Favored by farm support programs

• While Mexico has mainly smaller holders and,

• US farmers support averages US$21,000/year compared to US$700 for Mexican farmers

No externalities?• Environmental, associated with intensive livestock operations

• Maize is the most pesticide intensive among major U.S. crops

• Tomato production use more water in the US than any other crop

• Mexico is a center of origin for maize agrobiodiversity

• Given exceptions, special rules, and protection of sensitive sector -- the effect of liberalization is unknown.

Specific – Maize

• 100% Increase of US Maize exports

• 25% NAFTA related

• 40% decrease in irrigated area, still maize is 50% seeded area –total area constant at 8.7 M ha

• Production increase

– TRQ not applied

– US$1 B loans for peso crisis including purchase of corn

– External factors important, since NAFTA not significant difference in import increase.

Mexico

• No maize genetic erosion

• Segmented market: capitalized and irrigated changed; smaller farmers cannot adapt

• 18% increase rainfed area – expansion into marginalized areas

• Decreased production in agrochemical intensive area

US: 1% of production exported to Mexico relocated to higher agrochemical use area

Environment Economic

• Petition by communities, NGOs including Greenpeace

• Secretariat will receive advice from Advisory Group on objectives and scope of the report

• …will analyze the likely effects of current and future uses of transgenic maize as compared to non-transgenic maize production upon: a) the genetic diversity of land races and wild relatives, b) agricultural and natural biodiversity, c) human and animal health, d) social values and cultural identity, and e) economic impact.

Origin and Objectives of maize report

Specific – Tomatoes

• 83% Increase in Mexican Tomatoes export to US

• 8-15% NAFTA related

• Irrigated, agrochemical intensive of Sinaloa and BC but area decreased 15%, yield increase of 50%

• 20% tomato production reduction in FL, 22% FL area reduction due to relocation to Mexico

Positive

• Technological innovation (started prior to NAFTA) offset increase production impact

• In the US, 2-3% reduction in agrochemical use is believed to be associated with NAFTA

• No pollution haven in Mexico

Environment Economic

Specific – Beef and Cattle

• 245% increase in beef export to Mexico

• 10-15% NAFTA related

• Production and export increased in 3 countries

– Price inelasticity of beef-cattle

Environment Economic

• According to Porter, little since production does not respond to price• However larger production in US and Canada, in large concentrated animal feeding operations may lead to more environmental problems.• There is an uneven regulation of these operations throughout NA but no evidence of pollution haven

Agricultural Preliminary Conclusions

• No agricultural pollution haven in Mexico (nor in cement)

• BUT the 3 million farmers employed in basic crop production are losing, except for large capitalized farmers that can adapt.

• Government support and prices have dropped, alternative are limited, smaller farmers not able to adapt to these rapid and sweeping changes

• Market failure such as these should be addressed before further trade liberalization, in addition to competition and externality failures

• Programs needed to help farmers during transition to market economy

• Policies to protect the environment, in developing countries? Even in US modeling capability is limited for ex ante assessment.

• Developing country policies’ ability to keep up with changes (e.g. pesticide containers in Sonora)

– Monitoring program needed for environmental, social, and economic concentration impacts