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 –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 CO 2 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)

Trade Liberalization and Mexican Reforms 1987 Tariffs reduced by 20%-100% for GATT 1989 Elimination of State agency, Conasupo, Import License and control, distribution and commercialization – exception: maize & beans 1992Constitutional change to land rights, Article Creation of Procampo, income support to replace supply management – 58% of previous support – benefits larger farmers 1993 NAFTA TRQ on maize (215%), beans (139%) over 15 years, wheat (15%) and soybeans (10%) over 10 years, open for others, all price support dropped Alianza para el campo to modernize ag. sectorand encourage transition to fruit and vegetable production

Mexican Δ Planted Area and Prices GATT AreaNAFTA Area Maize Total21% 9% -1% -44% Irrigated40% -40% Beans Total41% 24% -3% -26% Irrigated -34% Sorghum, wheat, soybean,rice % % 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 EnvironmentEconomic

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