USA, MEXICO & OTHER THIRD COUNTRIES

USA

BASELINE

The United States is rich in fertile farm soil and also enjoys a moderate climate. There are more than 2.2 million farms in the U.S. and the country is a net exporter of agricultural products. By volume the top agricultural products are corn, cattle meat and cow’s milk. By value, the top products are corn, soy and wheat.²²⁸

Output from U.S. farms has grown dramatically, allowing consumers to spend an increasingly smaller portion of their income on food and freeing a large share of the population to enter nonfarm occupations that have supported economic growth and development.²²⁹ While the more broadly defined food and agriculture sector continues to play a strong role in the national economy, farming has progressively contributed a smaller share of GDP (1.2%) and employed a smaller share of the labour force.²³⁰

As of 2008, approximately 2-3 percent of the population is directly employed in agriculture. Of the 145 million employed workers in the U.S., 834,000 of them held jobs as agricultural workers with 83% of these jobs being as farm workers.

The United States has the largest feed-cattle industry in the world, and is the world's largest producer of beef, primarily high-quality, grain-fed beef for domestic and export use.²³¹ The retail value equivalent of U.S. and beef cattle industry amounted to $73 billion in 2009.²³² The United States exported 7.2% of its beef production in 2009, for a value of $2,828 billion. Over 90% of the U.S. beef exports markets are sent to, in order, Mexico, Canada, Japan and South Korea.²³³ With the partial EU ban on hormone-treated beef, the EU constitutes a small market in this sector.

At the beginning of 2009, the U.S. had nearly 67 million hogs and pigs, with the majority located in the Midwest and a further 15 percent in North Carolina.²³⁴ The United States is the third-largest producer and consumer of pork and pork products and the largest exporter and fifth largest importer.²³⁵ The largest export markets for American pork products were Japan (28.36%), China/Hong Kong (18.24%) and Mexico (14.44%). It should be noted that the EU and Canada are the two most important U.S.

competitors in the pork export market.

Dairy has the second largest value of production in the United States behind beef. Dairy farms are generally family-owned and managed, with most maintaining membership in cooperatives.²³⁶ As a member of the WTO, the United States, along with many other dairy-trading countries, established tariff rate quotas (TRQs) for dairy products. The TRQs allow imports at very low tariffs up to fixed amounts.

228 USDA-NASS Reports

229 Dimitri et al (2005)

230 Ibid.

231 USDA. http://www.ers.usda.gov/Briefing/Cattle/

232 ERS-USDA

233 Ibid.

234 USDA. http://www.ers.usda.gov/Briefing/Hogs/

235 Ibid.

236 USDA. http://www.ers.usda.gov/Briefing/Dairy/

102 Any additional imports are subject to very high tariffs. Many of the individual TRQs are administered through licenses for imports of specific products from specific countries or regions. The United States has not been a major exporter of dairy products on a sustained basis, while being a relatively large importer of cheese.²³⁷

Enjoying an extensive coastline on both the Atlantic and Pacific Oceans, as well as on the Gulf of Mexico, the Great Lakes and surrounding Alaska, the fishing industry is also a large contributor to the U.S.

economy at 0.5% of GDP.²³⁸ According to the FAO, in 2005 the United States harvested 4,888,621 million tonnes of fish from wild fisheries and another 471,958 tonnes from aquaculture. This made the United States the fifth leading producer of fish after China, Peru, India and Indonesia, with 3.8 percent of the world total.²³⁹ As with other countries, the 200 nautical miles (370 km) exclusive economic zone (EEZ) off the coast of the United States gives its fishing industry special fishing rights. It covers 11.4 million square kilometres (4.38 million sq mi). This is the largest zone in the world, exceeding the land area of the United States.²⁴⁰

ANALYSIS

The CETA’s impact on the U.S. agriculture, PAPs and fisheries sector is likely to be minimal, with the extent largely tied to the level of liberalisation achieved under the Agreement. The most prominent general impact will be the erosion of preferences with Canada as the EU achieves preferential access to the Canadian marketplace for a number of its agricultural products.

Dairy stands out as a sector in which the U.S. may lose Canadian market share should the CETA lead to increases in EU market access. However, as noted in the Canada assessment, it appears unlikely that the Agreement will lead to anything more than improvements in the minimum access commitments bestowed on the EU, limiting the negative impact likely to befall the U.S.

With significant reduction in tariffs on both sides, it appears that the CETA could lead to reduced exports of U.S. processed foods (e.g. preparations of cereals and milling products, preserved/frozen fruits and vegetables, etc.), as increased EU access to the Canadian market leads to reduced imports of U.S. agri-food products in Canada. Minor decreases in employment within agri-food manufacturing industry within the U.S. could lead to marginal amounts of displacement, leading to a minor negative social impact.

An additional sector that may be negatively impacted as a result of the CETA is the U.S. alcoholic beverages sector as increased access to the Canadian markets would allow EU producers to take an increased share of the market previously held by U.S. imports. The degree of this impact would likely be largely influenced by the degree with which the CETA is able to lead to a resolution of what the EU deems are discriminatory practices in Canada’s provincial liquor control boards.

Finally, the meat sector stands to be negatively impacted by improved EU market access for Canadian beef and pork producers, particularly given the likelihood that this would likely require that cattle and hogs be raised in Canada in order to qualify for preferential access to the EU. Significant improvements in market access would, over the long-term, likely lead to some disruption in the level of integration between the U.S. and Canada as it relates to meat production, leading to less exports from the U.S. to Canada and less production in the former as Canadian producers would be incentivised to increase

237 US Dept of Agriculture

238 Bureau of Economic Analysis, Department of Commerce, 2006.

239 FAO: Fisheries and Aquaculture – 2008 Statistics

240 FAO: Profile for the USA

103 domestic production of hogs and cattle so as to ensure i) hormone free production and ii) ability to qualify as ‘Canadian-produced’ under EU rules of origin.

The environmental impacts of a CETA for this sub-sector are likely to be very limited because of the minimal economic impacts that predict very little change in national output. Specific to GHG emissions, the E3MG model results predict 0% difference in GHG emissions by 2018 under both a limited and ambitious tariff liberalisation. If as suggested there is a reduction in beef and pork production in the U.S.

because of incentives to Canadian producers to increase production locally, there could be a reduction in environmental impact from this sector on water quality and GHG emissions.

Box 12: Regulatory Concerns

A specific concern addressed by U.S. stakeholders in the Agriculture, PAPs and fisheries sector, is that CETA represents an effort by the Europeans to ‘export’ EU standards and regulatory regimes across a wide range of trade issues including health and safety mechanisms. The belief is that the CETA is part of a much broader strategy to target existing North American standards and regulations established in the NAFTA. As a result, it can be expected that the CETA will provide a template for future negotiations with the U.S.

With many multinationals already operating inside the regulatory system of the EU through investments or partnering, the U.S. is keeping a close eye on CETA negotiations with regards to increased administrative and compliance burdens imposed by EU regulatory schemes. Both the U.S. and Canada have concerns that SMEs will not be able to cope with programs such as REACH – the Registration, Evaluation, Authorization and Restriction of Chemical substances. U.S. trade officials consider the inability of Canadian and U.S. companies to cope with the regulations will encourage greater investment and see production moving to Europe.

MEXICO

BASELINE & ANALYSIS

Mexico has the world’s 14^th largest economy, and agriculture, PAPs and fisheries account for 4.3% of Mexico’s GDP. With 18% of the labour force employed in the sector, agriculture and agri-food serves as an important source of jobs for Mexico. However, agriculture as a percentage of GDP has been steadily declining as Mexico’s economy becomes more developed.

Crop production is the most important agricultural activity in Mexico, accounting for fully 50% of agricultural output. With limited projected impact in Canada or the EU as a result of the CETA, it is unlikely that Mexico will experience any significant effect in crop production over the long-term.

Mexico has some 11,500 kilometres of Pacific, Gulf of Mexico, and Caribbean coastline, and its inland waters cover more than 2.9 million hectares. The country's coastal fishing grounds offer a rich variety of fish and other seafood. In 2008 the fishing subsector employed 328,000 people.²⁴¹ The fishing industry

241 OECD

104 in Mexico is largely handled by cooperative societies, which are granted monopolies on the most valuable species of fish. Most fish processed in Mexico's canneries are consumed domestically.

Generally it is not expected that the CETA will impact the industry in Mexico. Again, it is not expected that Mexico’s fisheries industry will be significantly altered by a CETA between the EU and Canada.

Overall then, it does not appear that a CETA will have a pronounced economic impact on the agriculture, PAPs and fisheries sectors of the Mexican economy. While Mexico may experience some erosion of preferences presently held due to separate trade agreements with the EU and Canada, it is not likely that agriculture will be adversely or positively impacted to any significant degree. As a result, the environmental and social impacts of CETA from this sub-sector are likely to be very limited as well.

Specific to GHG emissions, the E3MG model results predict 0.2% difference in GHG emissions by 2018 under both a limited and ambitious tariff liberalisation.