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Long Wait for Fruits of Free Trade

Producers on both sides of the US-Mexican border urge adjustments in timing of shift to open market

By Staff writer of The Christian Science Monitor / November 9, 1992



MEXICO CITY

THE North American Free Trade Agreement (NAFTA), signed but not yet ratified, is not the Holy Grail that Avelard Sanchez hoped for.

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The promise was free access to millions of US drinkers of orange juice. As director of Citricos Tabasco, the largest orange producer in Mexico, Mr. Sanchez anticipated that the 34 percent duty on imported juice concentrates would disappear. Under NAFTA it will, but not soon.

"Real free trade is 15 years away," Sanchez sighs. "At least we know what the rules of the game will be between now and then."

NAFTA sets up a schedule for eliminating trade barriers on a host of agricultural goods traded between Canada, Mexico, and the United States. If approved next year, NAFTA will go into effect in 1994, immediately eliminating non-tariff barriers and allowing about half of US-Mexico agricultural trade to become tariff-free. Most remaining tariffs on fruits and vegetables will be phased out in the next five to 10 years.

But the crops for which consumers and producers could have expected the most dramatic price drops - crops on which the trade protection is highest now - are on a 15-year phase-in period.

The US is protecting orange juice concentrate, sugar, and its winter crops of tomatoes, broccoli, cucumbers, and asparagus. Canada is sheltering its poultry and dairy industries; Mexico, its corn, beans, sugar, and some dairy products.

Ironically, Florida citrus growers, who were looking for a complete exclusion from NAFTA, are no more happy than their Mexican counterparts.

"We're extremely concerned the agreement won't provide producers with the time they need for adjustments," says Mike Stuart of the Florida Fruit and Vegetable Association. "It's very disappointing not only for citrus producers but also for the tomato, pepper, sweet corn, and cucumber producers."

Although the US Congress cannot make major modifications in the pact, the US citrus industry is lobbying for a 20-year grace period followed by an immediate opening of the US market. Analysts say this is unlikely.

Mr. Stuart acknowledges the linkages that complicate changes. "Citrus was tied to corn in the negotiations. For the US to get access to the Mexican corn market, there was a price to pay. And we're going to pay it in Florida."

THE Florida citrus industry would lose $70 million to $200 million annually due to NAFTA, according to an estimate by the Florida Department of Agriculture. Job losses in the state's fruit and vegetable industry overall are estimated between 16,500 and 60,000.

Sanchez argues that Brazilian producers - not those in the US - will be hurt by NAFTA. The US imports 25 to 45 percent of total orange juice consumed each year, depending on the strength of the US crop. Brazil has been capturing about 85 percent of the import market. Mexico's share of the US orange juice import market is about 10 percent.

Under NAFTA, Brazil will continue to pay the full tariff. But Mexico will see an immediate 50 percent cut in the import duty on the first 40 million gallons shipped. That covers most or all of Mexico's annual exports to the US market in recent years. After 15 years, when the tariffs are fully phased out, Mexico will have a large price advantage over Brazil.

"This is a Brazilian problem, not a US problem. We are very small producers and despite low labor costs have other disadvantages. Our costs for transportation, financing, fertilizers, and farm equipment are all higher than US producers," Sanchez says.

Mary Hartney, spokeswoman for Florida Citrus Mutual, the state's largest growers association, says lower tariffs on Mexican orange juice could trigger a pricing war that would hurt Florida producers.

"We're going to be irreparably damaged. Brazil will do everything in its power to undercut the Mexican prices and defend its market share."

Economists say Mexico's threat to US producers is limited now because tariff reductions are relatively limited in the first years of NAFTA, but in the long run it could develop an edge.

"If Mexico can produce orange juice at lower costs than Brazil or Florida, then over the next 10 to 20 years that's where the new investment will go," says Mark Brown, economist at the Florida Department of Citrus.

Most US farmers are reacting positively to NAFTA.

"On balance, NAFTA will benefit most sectors of the US fruit and vegetable industry in the long run," says Jodean Bens of Washington-based United Fresh Fruit and Vegetable Association.

Apple, pear, peach, cherry, and plum producers in the US Northwest are looking forward to greater access to the Mexican market, Ms. Bens says. Producers of onions, tomatoes, and lettuce in Texas and southern California, meanwhile, see the possibility of joint-ventures and other kinds of investment in Mexican agriculture that will help them hedge against bad weather in the US.