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Lower Mexican tariffs on fluid milk, which will decline from 10 percent to zero over 10 years, will create a larger market for U.S. products, resulting in expanded export demand and higher producer prices. Fluid milk processors will gain from greater demand for fluid milk and added access to the Mexican market. U.S. consumers may face slightly higher milk prices in some areas.

Sugar. The U.S. and Mexico will phase out trade barriers in sugar over a 15-year period. For exports to exceed the current quota level of 7,258 metric tons, each country will have to become a net surplus sugar producer. Both countries import sugar. In recent years, Mexico has imported up to 1.4 million tons of sugar, with the United States supplying 20 to 25 percent of the Mexican import market, mostly under the sugar reexport program. If the United States becomes a surplus producer, exports to Mexico can expand to a maximum of 250,000 metric tons per year, duty free. Over-quota duties of $. 16 per pound on Mexican imports will be reduced and eventually eliminated. In 1996 U.S. sugar exports to Mexico were 27,528 tons, down 14 percent from 1995 and nearly equal to those of 1994. U.S. imports of Mexican sugar were 42,448 in 1996, more than double 1995 levels.

Both U.S. and Mexican duties on high fructose corn syrup (6 to 15 percent) will be phased out on a straight line basis over 10 years. This should allow U.S. agribusinesses to export additional HFCS to Mexico as per capita incomes in Mexico increase and import demand for sweeteners expands. Although there are seven wet millers of corn in Mexico, it appears unlikely that capacity exists to keep pace with projected HFCS demand without additional investment in infrastructure and increased corn production. In 1997, Mexico imposed antidumping duties on imports of U.S. HFCS.

Processed Food Products. U.S. exports of processed food products to Mexico have expanded in recent years. Consumer-ready food product exports to Mexico surpassed intermediate product exports in 1991-1993. Changing Mexican lifestyles, such as more two-income families, will increase consumer demand for more conveniently packaged and prepared food products. Since 1990, for example, U.S. exports of snacks, breakfast foods, and processed fruits and vegetables have more than doubled. Other items associated with higher income levels wine and beer, tree nuts, nursery products, cut flowers, pet foods also have more than doubled. Continued income growth and economic expansion in Mexico are keys to export market strength.

Conclusion

NAFTA created one of the world's largest free trade areas. It is designed to boost trade and economic growth, and lead to increased employment in all three countries. Trade gains, however, will not be made without some costs, as labor intensive agricultural sectors face more competition from imports and must adjust. Overall, U.S. agriculture stands to gain more than it will lose as trade barriers are lowered. Livestock, meats, feed grains, dairy, cotton, soft fruits, and processed foods are examples of U.S. sectors that will benefit. Some labor intensive fruit and vegetable producers have been adversely affected by NAFTA and are adjusting to the impacts. However, even the fruit and vegetable industry will see some benefits over the longer term as stronger economic growth in Mexico increases demand for many products. Finally, NAFTA secures previous gains to trade that have already benefited many sectors of U.S. agriculture.

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