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Report to the Chairman, Committee on Finance, U.S. Senate:

March 2005:

International Trade:

U.S. Agencies Need Greater Focus to Support Mexico's Successful 
Transition to Liberalized Agricultural Trade under NAFTA:

GAO-05-272:

GAO Highlights:

Highlights of GAO-05-272, a report to the Chairman, Committee on 
Finance, U.S. Senate.

Why GAO Did This Study:

In 1994, the North American Free Trade Agreement (NAFTA) created the 
worlds largest free trade area and, among other things, reduced or 
eliminated barriers for U.S. agricultural exports to Mexicos vast and 
growing markets. As part of a body of GAO work on NAFTA issues, this 
report (1) identifies progress made and difficulties encountered in 
gaining market access for U.S. agricultural exports to Mexico; (2) 
describes Mexicos response to changes brought by agricultural trade 
liberalization and challenges to the successful implementation of 
NAFTA; and (3) examines collaborative activities and assesses 
strategies to support Mexicos transition to liberalized agricultural 
trade under NAFTA.

What GAO Found:

U.S. agricultural exports have made progress in gaining greater access 
to Mexicos market as Mexico has phased out barriers to most U.S. 
agricultural products, and only a handful of tariffs remain to be 
eliminated in 2008. Total U.S. agricultural exports to Mexico grew from 
$4.1 billion in 1993 to $7.9 billion in 2003. Despite progress, some 
commodities still have difficulties gaining access to the Mexican 
market. GAO found that Mexicos use of antidumping, plant and animal 
health requirements, safeguards and other nontariff trade barriers, 
such as consumption taxes, presented the most significant market access 
issues for U.S. agricultural exports to Mexico.

Mexico has put in place several programs to help farmers adjust to 
trade liberalization, but structural problems, such as lack of rural 
credit, continue to impede growth in rural areas, presenting challenges 
to full implementation of NAFTA. Lagging rural development fuels 
arguments that NAFTA has hurt small farmers, although studies, 
including some Mexican studies, do not support this conclusion. 
Opponents of NAFTA want to block further tariff eliminations and are 
demanding renegotiation of NAFTAs agricultural provisions. Concerned 
about such opposition, U.S. officials acknowledged the need to promote 
the benefits of NAFTA, while seeking ways to help Mexico address its 
rural development issues.

Historically, U.S. agencies have undertaken many agriculture-related 
collaborative efforts with Mexico. Since 2001, U.S.Mexico development 
activities have taken place under the Partnership for Prosperity (P4P) 
Initiative to promote development in parts of Mexico where economic 
growth has lagged. Recognizing the importance of rural development to 
the success of NAFTA, Department of State and USDA strategies for 
Mexico call for building on collaborative activities under the P4P to 
pursue the related goals of rural development and trade liberalization 
under NAFTA; however, the P4P action plans do not set forth specific 
strategies and activities that could be used to achieve these goals.

Figure: Total Value of U.S.-Mexico Agricultural Trade, 1989-2003

[See PDF for Image]:

Source: GAO, based on USDA Foreign Agricultural Trade of the United 
States database

[End of Figure]:

What GAO Recommends:

To aid the successful implementation of NAFTA, GAO recommends that the 
U.S. Department of State, in cooperation with the U.S. Department of 
Agriculture (USDA) and other relevant agencies, develop an action plan 
under the Partnership for Prosperity Initiative laying out specific 
collaborative efforts on rural development that would support Mexicos 
transition to liberalized trade under NAFTA. GAO also recommends that 
the Department of State and other relevant agencies use the Initiative 
to expand collaboration with Mexico to facilitate credit availability 
in rural Mexico. U.S. agencies generally agreed with our 
recommendations.

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-272].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4128 or yagerl@gao.gov.

[End of Section]

Contents:

Letter:

Results in Brief:

Background:

U.S. Agricultural Exports Have Gained Greater Access to Mexico under 
NAFTA, but Some Market Access Barriers Remain:

Mexico Enacted Various Agricultural Programs in Response to Trade 
Liberalization, but Structural Problems Impair Growth and Challenge 
NAFTA Implementation:

U.S. Agencies Undertake Collaborative Agricultural Efforts, but Do Not 
Focus on Rural Development Challenges to Mexico's Transition to 
Liberalized Trade:

Conclusions:

Recommendation for Executive Action:

Agency Comments and Our Response:

Appendixes:

Appendix I: Objective, Scope, and Methodology:

Appendix II: Case Studies of Selected U.S. Agricultural Exports to 
Mexico:

Appendix III: Three Major Mexican Agricultural Programs:

Appendix IV: U.S.-Mexico Collaborative Activities Benefit Agricultural 
Trade (1994-2004):

Appendix V: Recent U.S.-Mexico Collaborative Agricultural Activities 
under Partnership for Prosperity:

Appendix VI: Comments from the U.S. Department of State:

GAO Comments:

Appendix VII: Comments from the U.S. Department of Agriculture:

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Tables:

Table 1: Conventional NAFTA Tariff Reduction Schedules:

Table 2: Examples of SPS Controversies between the United States and 
Mexico:

Table 3: Animal and Plant Health Inspection Service (APHIS) Assistance 
and/or Collaborative Activities in Mexico, 1994-2004:

Table 4: USDA Economic Research Service (ERS), Collaborative Activities 
with Mexico, 1994-2004:

Table 5: USDA Agricultural Research Service, Collaborative Activities 
with Mexico, 1994-2004:

Table 6: USDA Foreign Agricultural Service, International Cooperation 
and Development (ICD), Collaborative Activities with Mexico, 1994-2004:

Table 7: USDA Agricultural Marketing Service (AMS), Collaborative 
Activities with Mexico, 1994-2004:

Table 8: USDA National Agricultural Statistics Service (NASS), 
Collaborative Activities with Mexico, 1994-2004:

Table 9: USDA Food Safety and Inspection Service (FSIS), Collaborative 
Activities with Mexico, 1994-2004:

Figures:

Figure 1: Total Value of U.S.-Mexico Agricultural Trade, 1989-2003:

Figure 2: Figure 2: U.S. Agricultural Exports to Mexico by Largest 
Product Groups, 1994-2003:

Figure 3: Total Volume of U.S. Fresh Apple Exports to Mexico, 1989-2003:

Figure 4: Total Volume of U.S. Beef Exports to Mexico, 1989-2003:

Figure 5: Total Volume of U.S. Corn Exports to Mexico, 1989-2003:

Figure 6: Total Volume of U.S. Fructose Syrup Exports to Mexico, 1989-
2003:

Figure 7: Total Volume of U.S. Pork Exports to Mexico, 1989-2003:

Figure 8: Total Volume of U.S. Poultry Meat Exports to Mexico, 1989-
2003: 

Figure 9: Total Volume of U.S. Rice Exports to Mexico, 1989-2003:

Abbreviations:

Alianza: Alliance for the Countryside (Alianza para el Campo):

AMS: Agricultural Marketing Service:

APHIS: Animal and Plant Health Inspection Service:

ARS: Agricultural Research Service:

BSE: bovine spongiform encephalopathy:

CFP: Cochran Fellowship Program:

CIMMYT: International Maize and Wheat Improvement Center (Centro 
Internacional de Mejoramiento de Maz y Trigo):

ERS: Economic Research Service:

FAO: United Nation's Food and Agriculture Organization:

FAS: Foreign Agricultural Service:

FATUS: Foreign Agricultural Trade of the United States:

FDA: Food and Drug Administration:

FMD: foot and mouth diseases:

FSI: Food Safety Initiative:

FSIS: Food Safety and Inspection Service:

GATT: General Agreement on Tariffs and Trade:

HFCS: high-fructose corn syrup:

NAFTA: North America Free Trade Agreement:

NASS: National Agricultural Statistics Service:

OPIC: Overseas Private Investment Corporation:

PROCAMPO: Program of Direct Support for the Countryside (Programa de 
Apoyos Directos al Campo):

P4P: Partnership for Prosperity:

SAGARPA: Mexican Ministry of Agriculture (Secretara de Agricultura, 
Ganadera, Desarrollo Rural, Pesca y Alimentacin):

SCRP: Scientific Cooperation Research Program:

SE: Mexican Ministry of the Economy (Secretara de Economa):

SENASICA: Mexican National Service for Agriculture and Food Health, 
Wholesomeness and Quality (Sevicio Nacional de Sanidad, Inocuidad y 
Calidad Agroalimentaria):

SIAP: Mexican Agricultural and Fisheries Statistics Service (Servicio 
de Informacin y Estadstica Agroalimentaria y Pesquera):

SPS: sanitary and phytosanitary:

SRE: Mexican Ministry of Foreign Affairs (Secretara de Relaciones 
Exteriores):

TCB: trade capacity building:

TRQ: tariff rate quota:

USAID: Unites States Agency of International Development:

USDA: United States Department of Agriculture:

USTR: United States Trade Representative:

WTO: World Trade Organization:

Letter March 25, 2005:

The Honorable Charles E. Grassley Chairman Committee on Finance United 
States Senate:

Dear Mr. Chairman:

In 1994, the North American Free Trade Agreement (NAFTA) created the 
world's largest free trade area and helped Mexico become one of the 
largest and fastest growing markets for U.S. agricultural products. 
U.S. agricultural trade officials consider NAFTA a model for U.S. 
efforts to liberalize free trade throughout the Western Hemisphere. 
NAFTA is an ambitious undertaking, bringing together the United States 
and Canada, two of the most competitive and advanced agricultural 
producing nations, and Mexico, a developing country with a large rural 
population still significantly dependent on traditional agricultural 
production methods. Since the beginning of the negotiations, concern 
over these disparities has provoked controversy in Mexico regarding the 
agricultural provisions of NAFTA, and the debate continues over the 
benefits of the agreement for Mexico's rural areas. This debate has 
significant implications for the full and successful implementation of 
NAFTA and long-term prospects for U.S. agricultural products in Mexico.

In response to your request for information on U.S.-Mexico agricultural 
trade and NAFTA, this report (1) identifies progress made, as well as 
difficulties encountered, in gaining market access for U.S. 
agricultural exports to Mexico since NAFTA went into effect; (2) 
describes both Mexico's efforts in response to changes brought by 
agricultural trade liberalization and challenges to the successful 
implementation of NAFTA; and (3) examines U.S.-Mexico collaborative 
activities and assesses strategies to support Mexico's transition to 
liberalized agricultural trade under NAFTA.

To address these objectives, we obtained and analyzed official data on 
agricultural trade trends from both U.S. and Mexican government 
agencies. We discussed the limitations and reliability of this trade 
data with U.S. Department of Agriculture (USDA) officials and 
determined that the trade data reported by USDA are sufficiently 
reliable for the purpose of this report. We conducted an extensive 
literature search and identified the most appropriate research and 
studies on Mexico's agricultural programs and on the impact of NAFTA on 
Mexican agriculture. We took several steps to ensure the credibility of 
those studies we used for our report. We also met with U.S. and Mexican 
government officials in Washington, D.C., and in Mexico City. We 
contacted representatives of U.S. producer groups, academia, and other 
experts on U.S.-Mexico agricultural trade and Mexican agricultural 
sector development issues, and we reviewed extensive documentation and 
academic research provided by these sources. We also prepared case 
study analyses for seven agricultural commodities to illustrate the 
type of market access problems confronting U.S. agricultural exports to 
Mexico. While we describe Mexico's use of trade measures, we did not 
evaluate the validity of their application. The commodities we selected 
for the cases studies were representative of products at various stages 
of the tariff elimination, different agricultural sectors (e.g., 
grains, horticultural, and animal products), various trade barriers, a 
range of dispute resolution mechanisms, and varying levels of export 
value and volume. We performed our work from February 2004 through 
February 2005 in accordance with generally accepted government auditing 
standards. Appendix I contains a full description of our objectives, 
scope, and methodology.

Results in Brief:

Since NAFTA went into effect in 1994, U.S. agricultural exports have 
gained greater access to Mexico's market. Mexico has phased out tariffs 
on all but a few agricultural imports from the United States and has 
ended its system of import licensing requirements--a key nontariff 
barrier. NAFTA also provided U.S. producers with additional recourse 
for resolving trade disputes. As implementation of NAFTA has progressed 
over the past decade, U.S. agricultural exports to Mexico have 
continued to demonstrate rapid growth, rising from $4.1 billion in 1993 
to $7.9 billion in 2003. Yet some commodities still experience 
difficulties gaining access to the Mexican market. We found that 
Mexico's use of antidumping actions, sanitary and phytosanitary 
requirements, safeguards, and a tax on beverages containing sweeteners 
other than sugar present the most significant market access problems 
for U.S. agricultural exports. For example, Mexico has applied special 
agricultural safeguard provisions on imports of U.S. live swine, pork, 
potato products, and fresh apples, while plant or animal health 
requirements have been applied to red meats, apples, and dry beans.

Beginning in the early 1990s, Mexican authorities instituted several 
programs to help farmers adjust to trade liberalization, including 
NAFTA, but structural problems like tenuous land ownership and lack of 
rural credit have impeded growth in rural areas, which presents 
challenges to the success of NAFTA. Mexican agricultural programs have 
targeted a range of farmers and objectives from income support to 
improved productivity. Yet critics note that Mexico still needs to 
address structural impediments to rural development. Lagging rural 
development has fueled arguments that NAFTA has hurt small farmers, 
although trade liberalization has not adversely affected Mexican 
agriculture as a whole. Opponents of NAFTA want to block further tariff 
eliminations and insist on a renegotiation of the agricultural 
provisions of the agreement. Both U.S. and Mexican officials warned 
about considerable opposition to the next round of tariff eliminations 
in 2008. One of the three remaining commodities scheduled to have 
tariffs lifted in 2008 is corn, which is particularly sensitive because 
it is the principal crop of small farmers. U.S. officials have 
acknowledged the need to promote the benefits of NAFTA, while seeking 
additional ways to help Mexico address its rural development issues.

Historically, U.S. agencies have collaborated with Mexico in support of 
mutual agricultural interests, but these activities have not been 
intended to address the challenges presented by lagging rural 
development to Mexico's transition to liberalized trade under NAFTA. 
Although the United States has provided technical assistance to recent 
free trade partners to facilitate their adjustment to trade 
liberalization, no such assistance was arranged for Mexico when the 
agreement was concluded. More recently, since 2001 the United States 
has supported collaborative bilateral efforts under a high-level 
bilateral initiative, the Partnership for Prosperity (P4P), to promote 
economic development in the parts of Mexico where economic growth has 
lagged. Officials from both countries are working on a broader approach 
to Mexican rural development under the initiative, but they recognize 
that much still needs to be done in this area. Under P4P the United 
States has provided some limited support for rural development in 
Mexico, including technical assistance to the Mexican government's new 
rural credit institution. The State Department's Mission Performance 
Plan and USDA's Unified Export Strategy for Mexico call for building on 
collaborative activities under P4P to pursue rural development and 
support trade liberalization under NAFTA. However, P4P documents 
generally have little to say about furthering the implementation of 
NAFTA, and P4P action plans do not set forth specific strategies or 
activities that could be used to support rural development in support 
of free trade.

To aid the full and successful implementation of NAFTA, we recommend 
that the Secretary of State, as the head of one of the lead agencies 
for the P4P initiative, work with the Secretary of Agriculture and 
other relevant officials to develop an action plan under P4P that lays 
out specific collaborative efforts on rural development that would 
support Mexico's successful transition to liberalized agricultural 
trade under NAFTA. To promote rural development in Mexico and enhance 
small farmers' ability to benefit from NAFTA, which would also help 
shape a more positive perception of the agreement, we also recommend 
that the Secretary of State work with USDA and other relevant agencies 
to expand collaborative efforts with the Mexican government to 
facilitate credit availability in the countryside. The State Department 
and USDA generally agreed with our recommendations.

Background:

Mexico's accession to the General Agreement on Tariffs and Trade 
(GATT)in 1986 initiated a process of market liberalization that 
provided significant opportunities for U.S. agricultural 
exports.[Footnote 1] By the early 1990s, Mexico had become the fastest 
growing export market for U.S. agricultural products, and the United 
States enjoyed a substantial net agricultural trade surplus with 
Mexico. U.S. agricultural producer groups were generally supportive 
when the United States and Mexico entered into negotiations aimed at 
creating a free trade agreement, which eventually resulted in NAFTA.

NAFTA Commitments Designed to Eliminate Many Agricultural Trade 
Barriers:

In negotiating NAFTA, the United States sought to gain additional 
market access for its agricultural exports to Mexico by eliminating 
Mexican agricultural tariffs. Mexico's agricultural tariffs averaged 10 
percent, compared to average U.S. tariffs of 4.5 percent at the time 
NAFTA was being negotiated.[Footnote 2] NAFTA called for Mexico to 
eliminate tariffs on most commodities immediately upon implementation 
of the agreement in 1994 and to do away with nontariff trade barriers, 
most notably its system of:

import licensing requirements.[Footnote 3] Some products that Mexico 
considered to be particularly sensitive commodities were granted 
transition periods for tariff elimination to allow time for Mexican 
producers to adjust to increased import competition.

NAFTA sets forth the specific schedules for tariff elimination and 
places commodities in staging categories, or "baskets," that define 
when the commodities should enter the market duty-free.[Footnote 4] In 
general, tariffs for products that were granted transition periods were 
reduced in equal increments over a specified time period (see table 1). 
However, for certain sensitive commodities (such as corn and poultry) 
the greater part of tariff reductions was postponed until the final 
years of the transition period, a practice referred to as "back-
loading."

Table 1: Conventional NAFTA Tariff Reduction Schedules:

Staging categories for goods: A-enter duty free;
Date of implementation: January 1, 1994;
Rate of annual tariff reduction: Not applicable.

Staging categories for goods: B-five equal cuts;
Date of implementation: January 1, 1998;
Rate of annual tariff reduction: 20 percent.

Staging categories for goods: C-ten equal cuts;
Date of implementation: January 1, 2003;
Rate of annual tariff reduction: 10 percent.

Staging categories for goods: C+-fifteen equal cuts;
Date of implementation: January 1, 2008;
Rate of annual tariff reduction: 6.67 percent.

Staging categories for goods: D-continue duty free;
Date of implementation: Not applicable;
Rate of annual tariff reduction: Not applicable.

Source: NAFTA Chapter 3 and House Doc. 103-159, Volume 1.

[End of table]

NAFTA also called for Mexico and the other NAFTA partners to replace 
quantitative import restrictions with tariff rate quotas (TRQs). 
Products subject to TRQs enter the importing market duty-free up to the 
level of the quota. Once the duty-free level (quantitative limit) is 
reached, a duty is imposed on the over-quota imports. NAFTA partner 
countries committed to gradually expanding the duty-free quota for the 
commodities, reducing the over-quota tariff charged during the 
transition period, and ultimately eliminating the TRQs. As with the 
phasing out of tariffs, NAFTA TRQs follow the same scheduled transition 
periods of 4, 9, and 14 years.[Footnote 5]

Application of Trade Measures under NAFTA Are Subject to Disciplines:

In addition to providing for the elimination of tariff and nontariff 
trade barriers, NAFTA also established disciplines for the application 
of trade measures to counter threats or harm to domestic producers and 
consumers, such as sanitary and phytosanitary (SPS) 
requirements,[Footnote 6] antidumping and countervailing 
duties,[Footnote 7] and safeguard actions.[Footnote 8] For example, 
NAFTA requires that SPS measures must be science-based, 
nondiscriminatory, and transparent, and that they are applied only to 
the extent necessary to achieve a party's appropriate level of 
protection. Similarly, under NAFTA the parties are required to follow 
their domestic legal procedures when applying antidumping or 
countervailing duties measures in response to unfair foreign trade 
practices. NAFTA also calls for safeguards to be applied through fair 
and open administrative procedures and for compensation to be provided 
for the affected countries. Under NAFTA, a party's right to apply a 
safeguard terminates at the end of an agreed-upon transition period. 
Thereafter, a party may apply the safeguard only with the consent of 
the exporting party. Moreover, NAFTA allows the party applying a 
safeguard to impose duties only up to the level of its Most Favored 
Nation duties.

NAFTA Presented Challenges and Opportunities for Mexican Agricultural 
Sectors:

Many studies projected that Mexico would benefit from improved access 
to U.S. agricultural markets for agricultural products under NAFTA. 
However, some observers raised concerns about the difficulties Mexico's 
more traditional agricultural producers might encounter as the country 
opened up to U.S. products. With more than 22 percent of the population 
dependent on the sector, but with many farmers unable to compete under 
free market conditions, agriculture is a significant yet vulnerable 
area of the Mexican economy. Differences in perceived opportunities and 
challenges resulted from the three distinct types of agricultural 
producers present in Mexico. Mexico's agriculture sector consists of a 
large number of small traditional farmers, some medium size 
commercially oriented growers, and a lesser number of large modern 
producers.[Footnote 9] These groups of farmers differ in many respects 
including farm size, access to capital, types of crops produced, and 
productivity. Small subsistence farmers produce primarily corn (maize), 
often at subsistence levels for self-consumption, in small parcels of 
less than 5 hectares of mostly rain-fed land.[Footnote 10] Corn is also 
among the major U.S. agricultural exports to Mexico, which is perceived 
by some to be in competition with the production of small subsistence 
farmers. Medium size farmers are involved in commercial-oriented 
operations, however, they face relatively high cost structures, which 
are marked by scarcity of capital and insufficiently developed 
marketing infrastructure. Some believe that medium size commercial 
farmers face the greatest impact from import competition and structural 
change. On the other hand, Mexico's large commercial farmers usually 
have larger plots of irrigated land and a higher productivity level. 
They have better access to capital, including direct investment and 
commercial lending from abroad. Mexican commercial farmers are also 
typically involved in production of higher-valued commodities, notably 
fresh fruits and vegetables, which have undergone dynamic export growth 
since the early 1990s.[Footnote 11]

Agricultural trade expansion since NAFTA's implementation generally has 
been consistent with expectations. While U.S. trade data indicates 
Mexican agricultural exports have done well under the agreement, some 
observers maintain NAFTA has had negative consequences for small 
farmers. For example, one study asserts that employment opportunities 
for Mexican subsistence farmers have declined under NAFTA.[Footnote 12] 
According to this study, imports of cheaper corn have contributed to 
lower corn prices in Mexico, which has led medium size farms to cut 
back their demand for labor supplied by subsistence farmers. However, a 
December 2003 World Bank report noted that NAFTA did not bring about 
many of the anticipated negative effects on poor subsistence farmers 
and had not had a devastating effect on Mexican agriculture as a 
whole.[Footnote 13] This research notes that as consumers, Mexican 
farmers may have benefited from lower corn prices.[Footnote 14] In 
addition, corn production in Mexico has not declined, but rather had 
increased by about 14 percent since NAFTA was enacted, to a record high 
in 2003. Other research conducted by several Mexican academic 
institutions concluded that NAFTA had resulted in benefits for the 
country's farm sector, including increased agricultural exports and 
greater investment in agricultural production.[Footnote 15]

U.S. Agricultural Exports Have Gained Greater Access to Mexico under 
NAFTA, but Some Market Access Barriers Remain:

As implementation of NAFTA has progressed over the past decade, Mexico 
has phased out tariffs on agricultural imports in accordance with the 
agreement's scheduled transition periods of 4, 9, and 14 years and has 
done away with a key nontariff trade barrier, import licensing 
requirements. U.S. agricultural exporters have benefited both from this 
process of continued trade liberalization under NAFTA and from the 
additional assurances provided through the NAFTA dispute settlement 
mechanism. Exports to Mexico have increased significantly since NAFTA, 
continuing a trend of export growth that started in the mid 1980s. 
However, despite the progress made, some U.S. agricultural products 
continue to experience difficulties gaining access to the Mexican 
market, typically due to antidumping, SPS requirements, safeguards, and 
other trade measures Mexico has put in place. These difficulties are 
not unlike challenges U.S. agricultural exports face in other major 
markets, such as Canada or Japan.

NAFTA Increased Market Access and Provided Additional Recourse for 
Resolving Disputes:

Although Mexico had taken several steps to allow greater access to its 
markets prior to 1994, NAFTA provided a legal agreement and framework 
through which further market liberalization could take place. Further, 
NAFTA's dispute settlement mechanism provided U.S. exporters with 
additional rules and processes for resolving disputes that did not 
exist prior to NAFTA.

Mexico Successfully Reduced Tariffs and Other Barriers:

Mexico has thus far implemented its NAFTA commitments by reducing or 
eliminating tariffs according to schedule and removing nontariff 
barriers, resulting in greater access for U.S. agricultural goods. In 
the latest round of tariff eliminations (on Jan. 1, 2003), Mexico 
eliminated tariffs on more than a dozen commodity imports from its 
NAFTA partners, including products important to U.S. producers such as 
rice, soy oil, and pork. On January 1, 2003, in accordance with its 
commitments under NAFTA, Mexico had eliminated tariffs or TRQs on all 
but three commodities: corn, dry beans, and milk powder.[Footnote 
16]Two of these commodities, corn and beans, are considered 
particularly sensitive commodities for Mexican agriculture because they 
are among the principal crops of small Mexican farmers and are also 
staples of the Mexican diet. TRQs on these commodities are scheduled 
for full elimination by the end of the 14-year transition period in 
2008.[Footnote 17]

In addition, Mexico has done away with import licensing requirements, a 
key nontariff barrier. These import licensing requirements functioned, 
in effect, as a type of quota, since only the volume of goods 
authorized under the import license could be imported, and they were 
intended to protect Mexican producers of agricultural commodities that 
were sensitive to foreign competition. Prior to NAFTA, many major U.S. 
agricultural exports to Mexico, such as poultry, dairy, wheat, corn, 
and dry beans, were subject to import licensing requirements. NAFTA 
permitted Mexico to use phased-in tariff elimination as a mechanism to 
transition away from the use of import licensing requirements. Under 
the agreement, Mexico immediately did away with import licensing 
requirements and converted them to either regular tariffs or TRQs. 
Additionally, NAFTA set a schedule to gradually eliminate both the 
tariffs and TRQs.

NAFTA Dispute Settlement Provides Additional Recourse for U.S. 
Producers:

NAFTA also benefits U.S. exporters by providing them with a formal 
mechanism for resolving disputes.[Footnote 18] Under the agreement, 
disputes that cannot be resolved through consultations between member 
countries may be brought before impartial, independent panels. Since 
both the United States and Mexico are members of the WTO as well as 
NAFTA, the United States can file trade grievances under the dispute 
settlement mechanism provided by either agreement. According to United 
States Trade Representative (USTR) officials, the United States 
generally would utilize the NAFTA dispute settlement mechanism if it 
determined that Mexico is in violation of a provision that is specific 
to NAFTA and is not covered under the WTO. These officials explained 
that the United States would rely on the WTO's dispute settlement 
process if the matter also affected WTO members that are not members of 
NAFTA. According to information provided by USTR, to date, the United 
States has only brought one agricultural dispute settlement case 
against Mexico under NAFTA, compared to four under the WTO 
process.[Footnote 19]

According to a U.S. Department of Agriculture (USDA) report, most trade 
disputes are resolved through informal discussions or consultations 
involving government and private sector representatives, rather than 
formal dispute settlement procedures.[Footnote 20] For example, through 
government-to-industry negotiations, a minimum price agreement was 
established for U.S. apples, and through government-to-government 
negotiations, an agreement was reached to modify Mexico's dry bean 
quota auctions. In addition, through industry negotiations, a dispute 
involving U.S. and Mexican grape industry labeling regulation was 
resolved. The use of industry negotiations also deterred the Mexican 
cattle industry from filing an antidumping petition against imports of 
U.S. cattle. Another alternative dispute settlement mechanism is the 
NAFTA Advisory Committee on Private Commercial Disputes Regarding 
Agricultural Goods, which recommends less adversarial resolutions to 
agricultural contract or commercial disputes.[Footnote 21]

U.S. Agricultural Trade with Mexico Has Continued to Increase since 
NAFTA:

Since NAFTA's implementation, total U.S. agricultural exports to Mexico 
have nearly doubled, rising from $4.1 billion in 1993--the last year 
prior to NAFTA's implementation--to $7.9 billion in 2003 (adjusted for 
inflation).[Footnote 22] Between 1993 and 2003, the value of U.S. 
exports to Mexico grew on average by 17.4 percent annually. By 
comparison, U.S. agricultural exports to the world grew at an average 
annual rate of 2.3 percent over the same time period. U.S. exports to 
Mexico have comprised an increasingly larger share of the United 
States' total agricultural exports; Mexico's share grew from about 8 
percent in 1993 to about 13 percent in 2003. Moreover, according to 
USDA's export strategy for Mexico, the full implementation of NAFTA, a 
growing urban population, increasing per capita income, and lack of 
arable land make Mexico an excellent long-term prospect for U.S. 
agricultural products.

U.S. agricultural exports to Mexico already underwent significant 
growth after Mexico joined GATT in 1986 and began opening its market to 
foreign trade. By the early 1990s, Mexico attained its position as the 
third largest importer of U.S. agricultural products, after Canada and 
Japan. The overall increases in agricultural exports to Mexico since 
NAFTA began came about despite the collapse of the Mexican peso in late 
1994, which harmed Mexican purchasing power for foreign goods and 
triggered an economic downturn. Beginning in about 1996, Mexico's 
economy began a recovery, and U.S. exports to Mexico expanded 
accordingly. Not all increases in exports to Mexico can be attributed 
to NAFTA because factors such as economic growth, weather, exchange 
rates, domestic supply, and population growth also affect Mexico's 
demand for U.S. products.

U.S. imports of agricultural products from Mexico have also increased 
since NAFTA, rising from about $2.9 billion in 1993 to $6.3 billion in 
2003 (adjusted for inflation).[Footnote 23] Agricultural imports from 
Mexico increased at an average annual rate of 8.5 percent over the same 
time period. In 2003, agricultural imports from Mexico accounted for 
about 13 percent of the total value of U.S. agricultural imports from 
the rest of the world. Figure 1 shows the total value of U.S.-Mexico 
agricultural trade.

Figure 1: Total Value of U.S.-Mexico Agricultural Trade, 1989-2003:

[See PDF for image]

[End of figure]

Notwithstanding the potential effects of external factors on trade, 
NAFTA's impact on U.S. exports, particularly for certain key 
commodities, generally appears to have been positive. Earlier studies 
generally concluded that the agreement would increase U.S. export 
opportunities for grains, oilseeds,

dairy products, tree nuts, and meats.[Footnote 24] Trends in the trade 
of the largest groupings of U.S. agricultural products have been 
generally consistent with these predictions. For example, the United 
States increased exports of animal products, grains and feeds, fruits 
and vegetables, and oilseeds to Mexico since NAFTA.[Footnote 25] From 
NAFTA's implementation in 1994 until 2003, the value of exports of 
these key groups of products underwent average annual increases of 
between 3.2 percent (oilseeds) and 16 percent (grains and feeds) (see 
fig. 2).[Footnote 26]

Figure 2: Figure 2: U.S. Agricultural Exports to Mexico by Largest 
Product Groups, 1994-2003:

[See PDF for image]

[End of figure]

Despite Progress, Market Access Barriers Remain:

Some U.S. agricultural products continue to experience difficulties 
gaining access to the Mexican market due to the application of 
nontariff trade measures. Although Mexico removed import licensing 
requirements, a key nontariff trade barrier prior to NAFTA, it still 
applies several nontariff measures that affect imports from the United 
States. According to USDA, the nontariff measures that present the most 
significant barriers to market access for U.S. agricultural exports 
have been Mexico's application of antidumping duties, SPS requirements, 
and safeguards. In addition to these trade measures, Mexico has put in 
place a product tax on all beverages containing sweeteners other than 
sugar, which has basically eliminated the Mexican market for high-
fructose corn syrup (HFCS).[Footnote 27] However, these impediments are 
not unlike market access challenges experienced by U.S. agricultural 
exports to other major trade partners, including Canada, Japan, and the 
European Union.

The following section presents information on the key nontariff 
barriers and examples of U.S. agricultural commodities that have 
encountered market access challenges in Mexico. The information is 
based, in part, on our analysis of market access issues related to 
seven selected agricultural commodities: apples, beef, corn, HFCS, 
pork, poultry, and rice. Our analysis of each of these commodities is 
presented in greater detail in appendix II.

Antidumping Actions:

The use of antidumping duties continues to pose a barrier to U.S. 
agricultural exports to Mexico. The United States has raised complaints 
in the WTO regarding Mexico's application of its antidumping laws on 
commodities such as hogs, rice, and beef.[Footnote 28] The United 
States requested a WTO panel with respect to rice and has argued that 
Mexico's imposition of antidumping duties is inconsistent with the WTO 
Antidumping Agreement. Mexican officials at the Ministry of the Economy 
(Secretara de Economa) stated that Mexico's application of 
antidumping measures to U.S. agricultural imports was based on an 
objective and intensive investigation that determined harm. According 
to representatives from some U.S. producer groups and a former senior 
Mexican government official, however, there may also be other 
considerations that affect Mexico's antidumping decisions. For example, 
U.S. apple producers question the timing of Mexico's imposition of 
antidumping duties on apples in August 2002, only a few months before 
NAFTA's tariff rate quota on apples was scheduled to be lifted on 
January 1, 2003. Additionally, these observers told us that Mexico's 
antidumping actions against certain U.S. agricultural imports are, to 
some extent, a response to U.S. restrictions on Mexican exports to the 
United States.

Sanitary and Phytosanitary Measures:

NAFTA establishes a number of general requirements to ensure that SPS 
measures are only used to the extent necessary to protect plant, 
animal, and human health and not as a means to protect domestic 
producers fromcompetition.[Footnote 29] As mentioned earlier, NAFTA 
calls for these measures to be science based, nondiscriminatory, and 
transparent and requires that the measures be applied only to the 
extent necessary to achieve an appropriate level of protection. Mexican 
officials responsible for plant and animal health protection maintain 
that Mexico's SPS measures are based on sound science. However, USDA 
officials and industry group representatives have raised concerns about 
the legitimacy of some SPS measures imposed by Mexico on U.S. 
agricultural imports as it eliminates tariffs and tariff-rate quotas. 
U.S. producer groups told us that they believe Mexico sometimes uses 
SPS measures as a means to retaliate for U.S. policies against its 
agricultural exports to the United States. For example, some U.S. 
producer groups contend that in order to protest U.S. phytosanitary 
controls on imports of avocados from Mexico, Mexico's agricultural 
authorities initiated a new policy against U.S. cherries requiring 
cherry exports to Mexico to undergo a much more rigorous inspection 
process at the border than is warranted. As a result, U.S. exports of 
cherries to Mexico dropped significantly because U.S. exporters wanted 
to avoid delays at the border that would pose risks with such a 
perishable commodity. Moreover, the 2004 proposed work-plan of 
phytosanitary measures was not signed. Table 2 illustrates examples of 
SPS controversies between the United States and Mexico.

Table 2: Examples of SPS Controversies between the United States and 
Mexico:

Item:: Importer/Exporter: Red meats; Mexico/U.S; 
Description: Mexico recently changed the location of inspection of meat 
imports from the United States. Under the previous system, Mexican 
inspectors had inspected the U.S. meat loads on the U.S. side of the 
border. Now the loads are inspected in Mexico. Even though the loads 
carry a U.S. Food Safety and Inspection Service export inspection 
certificate, several loads, either whole or partial, have been rejected 
in Mexico, creating a complex problem for disposal of the meat. The 
loads must be re-exported to the United States or destroyed in Mexico.

Item:: Importer/Exporter: Apples; Mexico/U.S;
Description: Mexico required preshipment inspection and approval of 
U.S. exports of apples to Mexico by Mexican inspectors in the United 
States. U.S. packers and exporters pay the cost. Mexico delayed 
withdrawing its oversight until 2004.

Item:: Importer/Exporter: Dry beans; Mexico/U.S;
Description: Mexico denied entry to U.S. dry bean exports in early 2003 
as a result of a new emergency standard governing the phytosanitary, 
quality, and labeling requirements for imported beans for human 
consumption.

Source: Proceedings of the Eighth Agricultural and Food Policy Systems 
Information Workshop, January 2004, Puerto Vallarta, Mexico. The 
workshop was sponsored by the Farm Foundation and organized by Texas 
A&M University; the University of Guelph, Ontario, Canada; and Colegio 
de Mexico.

[End of table]

U.S. officials explained that SPS measures are the most commonly used 
nontariff measure affecting U.S. market access and may indeed, at 
times, be applied to protect domestic producers. According to U.S. and 
Mexican officials, determining when SPS measures are justified can be 
difficult for several reasons, including different country standards 
and different conclusions based on scientific data. Officials from 
USDA's A [Hyperlink, http://www.aphis.usda.gov/] nimal and Plant Health 
Inspection Service (APHIS) and its Mexican counterpart SENASICA 
(Servicio Nacional de Sanidad, Inocuidad y Calidad Agroalimentaria) 
informed us that they are working to harmonize U.S. and Mexican SPS 
standards to minimize disagreements. In addition, they are 
collaborating to lift Mexico's ban on imports of citrus from Arizona 
and areas in Texas due to concerns over fruit fly infestation, as well 
as to design and implement a more satisfactory inspection process for 
U.S. apple exports to Mexico.

SPS disputes stemming from differing interpretations of scientific data 
or differences in regulatory standards illustrate the technical 
complexity of plant and animal health protection regulations and their 
impact on trade. U.S. officials told us that working through SPS issues 
with Mexican authorities under NAFTA provided lessons for later 
negotiations. They explained that as developing countries liberalize 
their markets and begin to develop mechanisms to address health risks 
associated with increased agricultural trade, they often need technical 
assistance. Thus, the United States provided trade capacity building 
assistance to address SPS issues for some Central American countries 
and the Dominican Republic in connection with free trade agreement 
negotiations with those countries.[Footnote 30] The USDA Unified Export 
Strategy for Mexico notes that beyond addressing individual SPS issues 
there must be broader cooperation with Mexico on technical issues, such 
as the harmonization of standards, equivalency of regulatory processes, 
and transparency in light of the increasing market integration of the 
two countries.

Safeguards:

U.S. government officials and U.S. agricultural producer groups told us 
that Mexico's application of certain safeguards to U.S. agricultural 
products have been a trade nuisance. In the years following NAFTA, 
Mexico has applied special safeguard agricultural provisions on imports 
of U.S. live swine, pork, potato products, and fresh apples in the form 
of TRQs as provided for in NAFTA. Mexico also applied a safeguard under 
Chapter 8 of NAFTA on certain U.S. poultry products. Specifically, 
under NAFTA, Mexico's TRQ on poultry products was to be eliminated on 
January 1, 2003. However, in late 2002, Mexico's poultry industry 
petitioned the Mexican government to impose a safeguard on U.S. chicken 
leg quarters. The Mexican industry argued that the elimination of 
Mexico's TRQ would result in a surge in imports from the United States 
which would injure Mexican producers. USTR officials said the safeguard 
on poultry was a unique situation and questioned whether a similar 
arrangement could be achieved in other industries. For more information 
on U.S. poultry exports to Mexico, see appendix II.

The poultry case also highlights difficulties encountered in the 
implementation of a safeguard due to trade data discrepancies. The 
United States and Mexico did not agree on the quantity of U.S. chicken 
leg quarters that were exported to Mexico in the first half 2003. 
Mexican data showed a much larger surge than U.S. data. One U.S. 
official told us that the main reason for the large discrepancy was the 
way Mexico records its initial import statistics, which is based on 
notifications of intended imports filed by Mexican importers, rather 
than actual imports. After the TRQ on poultry expired on January 1, 
2003, Mexican importers filed large number of entries, but some never 
crossed the border. In response to these difficulties, Mexican 
officials informed us they have taken steps to clear notices of 
intended imports from their database when imports do not actually occur 
within a specified time frame.

Tax on Sweeteners Other than Sugar:

In addition to the trade measures discussed above, Mexico has imposed a 
tax on beverages made with sweeteners other the sugar, which has led to 
a strongly contested dispute between the United States and Mexico 
regarding market access for U.S. HFCS exports. Specifically, in January 
2002, the Mexican Congress imposed a 20 percent product tax on soft 
drinks and other beverages that use any sweetener other than cane 
sugar. This action meant that Mexico taxes any beverage containing 
HFCS, no matter the amount of HFCS present, at a rate of 20 percent, in 
addition to any other taxes already imposed. U.S. importers and 
producers of HFCS were affected immediately as Mexican beverage 
manufacturers switched to the use of domestically produced sugar 
instead of HFCS imported primarily from the United States. Although the 
tax was temporarily suspended by presidential decision for a 4-month 
period, Mexico's Supreme Court of Justice unanimously voted to nullify 
this decision in July 2002. As a result, the tax was imposed once 
again. In December 2002, the Mexican Congress voted to extend the tax. 
In 2004, the United States filed a dispute case in the WTO against 
Mexico's product tax on HFCS.[Footnote 31] The case is still pending 
resolution. See appendix II for more information on the HFCS case.

Mexico Enacted Various Agricultural Programs in Response to Trade 
Liberalization, but Structural Problems Impair Growth and Challenge 
NAFTA Implementation:

Since the early 1990s, the Mexican government has enacted several 
agricultural assistance programs to help farmers adjust to the changes 
brought by trade liberalization, including NAFTA. Rapid urbanization 
has also created political urgency to provide low-cost food by 
promoting greater efficiency in domestic food production. The three 
main programs had a total budget of over $2 billion in 2003, and their 
objectives range from income support to improving agricultural 
productivity. However, deep-seated structural problems, notably tenuous 
land ownership and lack of rural credit, continue to hinder growth and 
rural development. Opponents of NAFTA have sought to link lagging rural 
development and rural poverty in Mexico to growing imports of U.S. 
agricultural products. They oppose further tariff eliminations as 
called for under NAFTA and demand a renegotiation of the agricultural 
provisions of the agreement. This opposition presents challenges to 
Mexico's successful transition to liberalized agricultural trade under 
NAFTA.

Mexico Has Implemented Several Agricultural Programs and Polices:

In response to the changes that market reforms and free trade would 
bring to its agricultural sector, Mexico enacted various agricultural 
programs and policies since the early 1990s to help farmers adjust to 
changing economic conditions. Three of the most significant 
agricultural assistance programs have been (1) a major cash transfer 
program, PROCAMPO (Programa de Apoyos Directos al Campo); (2) an 
investment program, Alianza (Alianza para el Campo); and (3) a 
marketing support program (Programa de Apoyos Directos al Productor por 
Excedentes de Comercializacin para Reconversin Productiva, 
Integracin de Cadenas Agroalimentarias y Atencin a Factores Crticos, 
formerly Programa de Apoyos a la Comercializacin y Desarrollo de 
Mercados Regionales). Besides these three programs, there are other 
support programs in rural Mexico, such as Progresa, which was 
introduced in 1997 to alleviate poverty through monetary and in-kind 
benefits, as well as to invest in education, health and nutrition.

The three major agricultural assistance programs have different levels 
of budget and distinct objectives. Appendix III provides a detailed 
description of each program.

* PROCAMPO is the largest program in terms of annual budget, amounting 
to over $1.2 billion in 2003. It provides direct payments to oilseeds 
and grains (including corn) producers on a per-hectare basis. In 2001, 
it supported 2.7 million producers on 13.4 million hectares. Its 
objectives are to compensate farmers for expected losses under trade 
liberalization and the elimination of price subsidies, to make the free 
trade agreement acceptable to farmers, to alleviate poverty, and to 
reduce migration from rural areas.

* Alianza has an annual budget of around $570 million and supports 
about 2 million farmers. The program provides matching grants to 
finance productive investments and support services. The overall 
objective of the program is to improve agricultural productivity by 
promoting a transition to higher value crops, improving livestock 
health, facilitating technology transfers, and attracting investment in 
infrastructure.

* The marketing support program had an annual budget of about $580 
million in 2003 and benefits 240,000 producers. It provides payments to 
producers of grains and oilseeds in certain areas, usually on a per-ton 
basis. The Mexican government's evaluation suggests that the program 
provides certainty to farmers' income and is an important factor in 
mitigating migration from the countryside.

Lagging Rural Development in Mexico Fuels Concerns about the Long-term 
Success of NAFTA:

Notwithstanding various farm support programs including the ones 
discussed above, some researchers and Mexican and U.S. government 
officials noted that Mexico still needs to address structural 
impediments that hinder rural development. Some of these problems are 
related to Mexico's tenuous land ownership, known as the ejido 
system.[Footnote 32] Some economists argue that the small size of farm 
plots under the ejido system does not make for economically viable 
production units. In addition, the ejido system limits farmers' ability 
to obtain credit using land as collateral because the farmers do not 
have clear ownership of the land. Without access to credit, farmers 
cannot shift to new technologies and increase productivity. According 
to experts, the lack of rural credit has been a key impediment to 
Mexican agricultural development. Mexico's financial crisis of 1995 
exacerbated the problem of rural development by severely limiting the 
Mexican government's budget available to carry out programs to invest 
in rural areas. In addition, according to USDA, other challenges 
identified by experts that contribute to the lack of rural development 
include: low education level, poor rural infrastructure, environmental 
problems related to land use, and low levels of technology.

While U.S. officials note that NAFTA has greatly benefited Mexican 
agriculture overall, they express concern about the challenges posed by 
lagging rural development to the long-term successful implementation of 
the agreement. U.S. officials caution that lagging rural development 
fuels the arguments made by opponents of NAFTA that cheap imports from 
the United States have depressed Mexican agricultural product prices, 
hurting small farmers and deepening rural poverty. In its fiscal year 
2005 Unified Export Strategy for Mexico, USDA acknowledged the need for 
efforts to highlight the benefits of NAFTA for Mexico's economy while 
seeking ways to help Mexico address its rural development issues.

The implementation of NAFTA became a major political issue as Mexico 
prepared to eliminate tariffs and tariff rate quotas in January 2003. 
Elimination of these tariffs provided U.S. agricultural exports even 
greater access to the Mexican market. In order to respond to intense 
criticism by the opponents of NAFTA at that time, USDA officials had to 
engage in extensive dialogue with Mexican legislative and executive 
officials, and they mounted a public information drive to explain the 
benefits of NAFTA for Mexican agriculture. Ultimately Mexico eliminated 
the tariffs, but the administration of Mexican President Vicente Fox 
found it necessary to negotiate a national agreement on agriculture 
with various domestic constituencies. He intended the agreement--
referred to as Acuerdo Nacional para el Campo--to address concerns 
about perceived negative effects of trade liberalization on Mexico's 
rural poor. As part of this agreement, the Mexican government 
commissioned several Mexican academic institutions to study the impacts 
of NAFTA on Mexican agriculture. This research generally confirmed that 
structural problems confronting Mexican agriculture preceded the 
implementation of NAFTA. However, certain Mexican producer groups 
continue to pressure the government, and a number of members of 
Mexico's Congress have strong ties to groups that oppose NAFTA.

U.S. and Mexican government officials and agricultural experts warned 
that there may be considerable opposition to the next round of tariff 
elimination in 2008. These officials cited the experience in the months 
leading up to the latest round of agricultural tariff elimination in 
2003. In addition, they note that corn, one of the three remaining 
commodities scheduled to have tariffs lifted in 2008, is a commodity of 
particular concern in Mexico. Corn cultivation has ancient roots in 
Mexican rural culture; is central to the Mexican diet, accounting for 
about one-third of total calories; and remains the principal crop of 
subsistence farmers. For these reasons, eliminating tariffs on corn 
will be a sensitive cultural issue, as well as a matter of economic 
concern.

Certain farm groups in Mexico have argued that allowing cheap imports 
of U.S. corn will drive the Mexican agriculture into ruin. Mexican 
politicians who oppose NAFTA note the continuing economic distress in 
rural areas of Mexico and insist on renegotiation of the agricultural 
provisions of the agreement to improve the conditions of Mexican 
farmers. Although the total elimination of already low Mexican tariffs 
on corn may not have much economic significance for U.S. producers, 
failure to comply with the final phase of tariff elimination may 
undercut support for NAFTA among U.S. producers who were in favor of 
the agreement with the expectation that it would lead to genuinely free 
trade. Additionally, U.S. trade officials have expressed serious 
reservations about any attempt to renegotiate the agricultural 
provisions of NAFTA, because it could lead to demands to renegotiate 
other aspects of the agreement and undermine the agreement as a model 
for trade liberalization throughout the Western Hemisphere.

U.S. Agencies Undertake Collaborative Agricultural Efforts, but Do Not 
Focus on Rural Development Challenges to Mexico's Transition to 
Liberalized Trade:

Over the last 10 years, U.S. agencies, primarily led by USDA, have 
carried out numerous activities that benefit both U.S. and Mexican 
agricultural interests. However, these activities have not been 
intended to address the challenges presented by lagging rural 
development to Mexico's transition to liberalized trade under NAFTA. 
While the United States provides technical assistance to more recent 
free trade partners to facilitate their adjustment to trade 
liberalization, no such assistance was arranged for Mexico under NAFTA. 
Nevertheless, since 2001 the United States has supported collaborative 
efforts to promote economic development in the parts of Mexico where 
growth has lagged under the Partnership for Prosperity (P4P) 
initiative. Officials from both countries are working on a broader 
approach to Mexican rural development under the initiative, but they 
recognize that much still needs to be done in this area. In an effort 
to support rural development through P4P, the United States has 
provided some limited technical assistance to the Mexican government's 
new rural lending institution. Recognizing the importance of rural 
development to the successful implementation of NAFTA, State Department 
and USDA strategies for Mexico call for building on collaborative 
activities under P4P to pursue the related goals of rural development 
and trade liberalization under NAFTA; however, the P4P action plans do 
not set forth specific strategies and activities that could be used to 
achieve these goals.

United States Pursues Many Collaborative Agricultural Efforts in Mexico:

Historically, U.S. agencies have undertaken numerous collaborative 
agricultural efforts of mutual interest with their Mexican 
counterparts; however, the agencies have not intended those efforts to 
address the challenges presented by lagging rural development. USDA, in 
conjunction with its Mexican counterparts, has led most of these 
efforts as part of its traditional mission of supporting U.S. 
agricultural production and exports. With the exception of pest 
eradication efforts sponsored by the A [Hyperlink, http://
www.aphis.usda.gov/] nimal and Plant Health Inspection Service (APHIS)-
-approximately $280 million over the past 10 years--all USDA activities 
have involved modest funding of less than $8 million combined since 
NAFTA was implemented.

Some U.S. agencies have been involved in collaborative efforts with 
Mexico in pursuit of plant, animal, and human health objectives. USDA's 
APHIS and Food Safety and Inspection Service and the Food and Drug 
Administration have implemented several programs in Mexico to protect 
U.S. agriculture and consumers while also facilitating the export of 
Mexican agricultural products. For example, APHIS programs are working 
with the Mexican government and growers to eradicate the Mediterranean 
fruit fly. Eradicating the fruit fly is of great interest for U.S. 
fruit farmers. However, eliminating the fly would also allow Mexican 
farmers to eventually export fruit crops from formerly infested areas. 
Over the past 10 years APHIS has used almost all of its funds in Mexico 
for collaborative projects to finance various pest eradication efforts.

USDA's research, data collection, and marketing agencies, such as the 
Economic Research Service (ERS), National Agricultural Statistics 
Service, and Agricultural Marketing Service, have worked with their 
Mexican counterparts to enhance Mexico's capacity to collect, analyze, 
and disseminate agricultural information. According to ERS officials, 
these efforts have improved and facilitated agricultural trade 
transactions through the Emerging Markets Program. Economic Research 
Service officials said that while the focus of the Emerging Markets 
Program is to improve Mexico's data gathering and reporting systems, 
USDA has also benefited from Mexico's improved capabilities because 
having reliable information facilitates public and private decision 
making for both the United States and Mexico.

The Agriculture Research Service and the International Cooperation and 
Development area of USDA's Foreign Agriculture Service have 
participated in extensive scientific and academic research to improve 
Mexico's agricultural production. According to the Agriculture Research 
Service, there are several concerns over agricultural trade, including 
food safety, use and consumption of transgenic products,[Footnote 33] 
and control of plant and animal pests and diseases. For a list and 
description of collaborative activities with Mexico implemented by USDA 
agencies, see appendix IV.

NAFTA Did Not Provide Technical Assistance to Strengthen Mexico's Trade 
Capacity:

While the United Sates has provided technical assistance and support to 
more recent free trade partners through trade capacity building (TCB), 
no such assistance was arranged for Mexico when NAFTA was concluded in 
1994. TCB became an element of U.S. trade policy after it was 
introduced under the WTO Doha Development Agenda in 2001.While it was 
recognized that some agricultural sectors in Mexico would find it 
challenging to adjust to free market conditions when NAFTA was being 
negotiated, the agreement did not require that Mexico should receive 
any assistance to facilitate the transition of its farmers to a more 
open market.

One senior Mexican government official noted that in hindsight TCB or 
some type of assistance like it would have been beneficial as Mexico 
entered into a free trade environment with two very strong economies 
(the United States and Canada). However, this official stressed that 
Mexico has done very well under NAFTA overall, although small farmers 
have not typically benefited from economic opportunities provided by 
the agreement. Even though the United States does not have a 
comprehensive effort to provide TCB assistance to Mexico, some U.S. 
agencies have undertaken limited activities in Mexico, which they have 
characterized as TCB.

P4P Introduced a Broader Approach to Rural Development:

In 2001, U.S. President George W. Bush and Mexican President Vicente 
Fox launched the P4P initiative, a new model for bilateral cooperation 
involving a public-private approach to collaborative development 
efforts. This new initiative is aimed at assisting those economically 
depressed regions of Mexico that are the primary sources of migration. 
These areas tend to be rural regions in Mexico. While P4P seeks to 
create a new model for collaborating on economic development in Mexico, 
officials from both countries recognize that few activities have been 
implemented under P4P that directly affect poor rural areas and that 
much still needs to be done in the area of rural development.

P4P Expanded Collaborative Activities to New Areas, but Many Rural 
Regions of Mexico Remain Untouched:

P4P seeks to create a public-private alliance and develop a new model 
for U.S.-Mexican bilateral collaboration to promote development, 
particularly in regions of Mexico where economic growth has lagged and 
has fueled migration. No new funds were specifically allocated to P4P 
by either government; instead, the U.S. government sought to refocus 
resources already devoted to Mexico to create a more efficient 
collaborative network. According to State Department and USDA 
officials, since its establishment, P4P has become the umbrella for 
bilateral development collaboration and providing a broader approach to 
Mexico's rural development needs that includes occupational and 
economic alternatives for people in the countryside.

While this broader approach to rural development has been embraced by 
both the United States and Mexico, few activities have been implemented 
under P4P that directly affect poor rural areas. At the most recent P4P 
conference in Guadalajara, Mexico, a high-level State Department 
official responsible for P4P noted that many rural areas throughout 
central and southern Mexico have not yet been touched by P4P. 
Similarly, Mexican government officials commented that even though the 
P4P concept holds much promise, only a few new activities have been 
undertaken in rural development. For example, Mexican government 
officials told us and U.S. government documents confirm that 
approximately $10 million allocated for USAID rural development 
activities in Mexico under P4P have not yet been used to fund any new 
projects.[Footnote 34]

Nevertheless, since the initiation of P4P, there have been several 
first-time achievements that benefit Mexico's overall economic 
development. For example, under an arrangement worked out by the U.S. 
and Mexican government in cooperation with private sector financial 
institutions, the cost of remittances from the United States to Mexico 
has dropped by more than 50 percent over the last 3 years.[Footnote 35] 
Remittances from Mexican laborers living in the United States reached a 
record $16.6 billion in 2004. In addition, in 2003 a bilateral 
agreement was reached through P4P to allow the U.S. Overseas Private 
Investment Corporation (OPIC) to operate in Mexico for the first time. 
The agency's mission is to help U.S. businesses invest overseas to 
foster economic development in new and emerging markets. According to 
OPIC officials, for over 30 years there had been resistance by the 
Mexican government to allow the agency to operate in Mexico because of 
concerns over sovereignty. Since the bilateral agreement was signed, 
the OPIC has provided financing to five projects in Mexico, including 
one related to agriculture. For a description of this and other 
activities related to rural development by U.S. agencies under P4P, see 
appendix V.

Under P4P, the United States Supports Efforts to Facilitate Rural 
Access to Credit:

One of the few P4P activities to target rural communities is the U.S. 
technical assistance provided to the Mexican government's new rural 
lending institution, Financiera Rural.[Footnote 36] Financiera Rural 
supports agricultural and other economic activities in Mexico's rural 
sector with the goal of raising productivity as well as improving the 
standard of living of rural populations by facilitating access to 
credit. Through the USDA Cochran Fellowship Program, several Financiera 
Rural officials were trained in the United States on how to operate a 
rural credit program. These officials will serve as trainers for credit 
managers for Financiera Rural. In addition, through a USAID fellowship, 
USDA arranged for a U.S. expert to assist Financiera Rural in 
developing a strategic plan. This strategic plan calls for the 
development of rural financial lending intermediaries in Mexico, which 
will be fostered using a model that complies with Mexico's legal 
framework, determined by a study to be conducted jointly by the 
Financiera Rural and the Inter-American Development Bank. The new 
strategic plan also proposes that Financiera Rural fund any productive 
endeavor in the countryside, not only agricultural production. 
Activities could include eco-tourism, rural gas stations, 
transportation services, and so on. According to senior Financiera 
Rural officials, U.S. technical assistance under P4P has been 
instrumental in helping them roll out their rural credit program.

Financiera Rural officials told us that while the assistance they have 
received under P4P has had a positive impact, it has been limited. They 
said that Financiera Rural faces a great challenge in efforts to 
address limited credit availability in the countryside, which, as noted 
earlier in this report, is a key factor in Mexico's lagging rural 
development. In order to be able to establish an effective rural 
lending system for small and medium size farmers in Mexico, these 
officials explained that they need to shift from primarily short-term 
to long-term credit, develop a network of regional and local 
intermediary lending institutions, and provide financing for 
alternative rural economic activities beyond direct agricultural 
production. Mexican and U.S. officials told us that in order to 
accomplish these goals Financiera Rural needs to develop expertise in a 
number of areas, such as risk assessment, project management, and loan 
evaluation. These officials stated that the expertise in the field of 
rural credit that exists in the United States would be helpful in 
ensuring that Financiera Rural is successful in providing credit to 
small farmers and other entrepreneurs in the Mexican countryside.

P4P Does Not Specify Activities to Promote Rural Development in Support 
of Mexico's Transition to Liberalized Trade under NAFTA:

P4P offers an avenue for the United Sates to provide technical 
assistance and support to Mexico similar to what it has provided to 
more recent free trade partners through TCB, according to a senior USDA 
official. Similarly, Mexican officials said P4P provides the 
opportunity to make technical assistance available in areas such as 
rural development, which have not yet benefited from NAFTA. Recognizing 
the importance of rural development to the full and successful 
implementation of NAFTA, the State Department's Mission Performance 
Plan and USDA's Unified Export Strategy for Mexico call for building on 
collaborative activities under the P4P to pursue rural development and 
support trade liberalization. However, P4P documents generally have 
little to say about furthering Mexico's successful transition to 
liberalized agricultural trade under NAFTA, and P4P action plans do not 
set forth specific strategies and activities that could be used to 
advance rural development in support of free trade.

The lack of specific plans under P4P to pursue rural development in 
support of NAFTA is particularly noteworthy because USDA officials 
expressed concerns that Mexico's lagging rural development presents a 
challenge to the successful transition to liberalized trade under 
NAFTA, including the elimination of remaining tariffs in 2008. USDA 
officials noted that the underlying factors in Mexico's lagging rural 
development are structural and need to be addressed internally by 
Mexico. Nevertheless, USDA's Unified Export Strategy for Mexico calls 
for coordination with the U.S. Agency for International Development to 
pursue a rural development strategy under the rubric of the P4P 
initiative. This document also acknowledges the need to continue to 
underscore the benefits of free trade for Mexico under NAFTA while 
seeking ways to help Mexico address its rural development issues. USDA 
officials stressed that it is critical to change the debate from the 
need for protection from U.S. imports to promoting rural development in 
Mexico so that small and medium farmers can take advantage of the 
opportunities provided by free trade.

Conclusions:

As tariffs and tariff-rate quotas have been reduced or eliminated under 
the provisions of NAFTA, Mexican authorities have come under pressure 
to put in place technical barriers to protect producers from perceived 
harm from growing U.S. imports. Moreover, while Mexico has taken the 
steps called for under NAFTA to liberalize trade, lagging rural 
development fuels opposition to further implementation of the 
agreement. Yet the full and successful implementation of NAFTA is an 
important factor in assuring market access for United States 
agricultural exports to Mexico, and it is critical to broader U.S. 
trade interests because NAFTA is a model for trade liberalization in 
the Western Hemisphere. While the strategies of U.S. agencies in Mexico 
see an opportunity to build on the P4P initiative to pursue the related 
goals of rural development and trade liberalization under NAFTA, P4P 
documents generally have little to say about NAFTA. More specifically 
the P4P action plans do not set forth specific strategies and 
activities that could be used to advance rural development in support 
of free trade. P4P offers an opportunity for the United States to 
design a multi-agency comprehensive strategy to address the challenges 
presented by lagging rural development to Mexico's transition to 
liberalized agricultural trade under NAFTA, rather than providing 
assistance through individual measures.

Mexico's experience adjusting to the challenges of trade 
liberalization, ranging from difficulties associated with the 
application of SPS measures, problems raised by trade data 
discrepancies with the United States, and lagging rural development, 
illustrate the importance of technical assistance. While Mexico did not 
seek assistance under NAFTA to adjust to trade liberalization, the U.S. 
government has acknowledged the usefulness of technical assistance in 
addressing such challenges by providing TCB assistance in later trade 
agreements with developing countries. In Mexico, P4P offers an avenue 
for the United States to provide such technical assistance. A key 
impediment to Mexican rural development is the lack of credit in the 
countryside, and the United States with its significant experience in 
rural lending has the technical expertise Mexico seeks. Moreover, most 
of Mexico's structural impediments must be dealt with internally, but 
facilitating rural credit is one area in which the United States, 
through P4P, is in a position to collaborate with Mexico. Improving the 
rural economy through credit facilitation increases the opportunities 
for Mexican importers of U.S. agricultural commodities and begins to 
counter negative perceptions of NAFTA's impact.

Recommendation for Executive Action:

To aid the full and successful implementation of NAFTA, we recommend 
that the Secretary of State, as the head of one of the lead agencies 
for the P4P initiative, work with USDA and other relevant agencies to 
develop an action plan under P4P laying out specific collaborative 
efforts on rural development that would support the successful 
implementation of NAFTA. Such a plan could include a comprehensive 
strategy that outlines specific activities that are intended to address 
the challenges presented by lagging rural development to Mexico's 
successful transition to liberalized agricultural trade under NAFTA, 
and sets time frames and performance measures for these activities.

To promote rural development in Mexico and enhance Mexican small 
farmers' ability to benefit from trade opportunities under NAFTA, which 
would also help shape a more positive perception of the agreement, we 
recommend that the Secretary of State, as the lead agency for the P4P 
initiative, work with USDA and other relevant agencies to expand 
collaborative efforts with the Mexican government to facilitate credit 
availability in the countryside. This would include providing Mexico 
with expertise in the area of rural financing, such as risk assessment, 
project management, and loan evaluation.

Agency Comments and Our Response:

We provided a draft of this report to the Department of State, USDA, 
USTR, USAID, FDA and OPIC for their review. We received formal written 
comments from the Department of State and from USDA, which are 
reprinted in appendixes VI and VII, respectively, along with our 
responses to specific points. In its written comments, the Department 
of State agreed with the need to develop a P4P action plan on rural 
development, and noted that on February 17, 2005, the U.S. and Mexican 
governments agreed to create a new structure under P4P establishing 
seven permanent working groups, including one on rural development. 
Each of these working groups has been asked to develop an action plan 
for 2005 activities. The Department of State also emphasized that the 
broader goal of P4P is to spur economic growth and development in parts 
of Mexico that have benefited less from NAFTA (i.e., not limited to 
rural development) and noted that the P4P initiative must work within 
existing resources. The Department of State raised concerns that the 
report generally overstates the strength of opposition to NAFTA in 
Mexico. However, we do not believe we have overstated the opposition to 
NAFTA in Mexico. As noted in the report, U.S. and Mexican officials 
expressed concerns about how negative perceptions of NAFTA may impact 
successful implementation of the agreement. In addition, the report 
recalls the difficulties experienced in Mexico in anticipation of 
tariffs elimination under NAFTA in 2003.

In its letter, USDA expressed readiness to work with the Department of 
State and with other agencies, under P4P, to develop collaborative 
efforts to support Mexican rural development and facilitate the 
continued and successful implementation of NAFTA. The Department of 
State, USDA, USTR, OPIC, and FDA also suggested clarifications, 
technical corrections, and elaboration of certain points which we have 
incorporated into this report, as appropriate. USAID comments were 
incorporated in the formal letter from the Department of State.

We also obtained comments on key sections of the report from the 
Mexican Ministry of the Economy (SE), the Ministry of Agriculture 
(SAGARPA), and Mexico's rural lending institution for small and medium 
farmers (Financiera Rural). SE and SAGARPA submitted joint comments. 
While commending the overall positive portrayal of the U.S.-Mexican 
agricultural trade relationship, SE and SAGARPA expressed concern that 
the report did not sufficiently underscore the importance of the 
Mexican market for U.S. exports under NAFTA. They cited U.S. trade data 
to illustrate the dramatic growth in certain U.S. commodity exports to 
Mexico since NAFTA has been in effect. They noted that Mexico is the 
largest foreign market for U.S. beef and rice and the second largest 
foreign market for U.S. corn, pork, poultry, and apples, some of the 
commodities our report highlights to illustrate the effects of Mexican 
trade measures.

Additionally, SE and SAGARPA commented that our report did not provide 
a sufficiently detailed objective analysis regarding the nature and 
validity of various Mexican trade measures. These agencies expressed 
concern that the report unfairly portrays various Mexican trade 
measures without an adequate evaluation of the facts behind Mexico's 
implementation of these measures, such as the scientific support for 
certain SPS requirements, and the legitimate findings of antidumping 
investigations. SE and SAGARPA also objected to the report's reliance 
on the testimony of parties directly impacted by these measures. 
Similarly, SE and SAGARPA expressed disappointment that the report does 
not examine U.S. trade measures that impact Mexican agricultural 
exports to the United States, which parallel many of the difficulties 
faced by U.S. agricultural exports to Mexico. Finally, SE and SAGARPA 
also stressed that the debate over the impact of NAFTA on the Mexican 
rural economy does not have any substantive implications for the 
implementation of Mexico's obligations under the agreement.

GAO fully recognizes, and our report documents, the vital importance of 
the Mexican market for U.S. agricultural exports. We note the rapid 
growth in the value of U.S. agricultural exports to Mexico, which grew 
on average 17.4 percent annually and almost doubled from 1993 to 2003. 
We also point out that Mexico is the third largest market for U.S. 
agricultural exports and that its share of the U.S. agricultural export 
market has risen from 8 percent in 1993 to about 13 percent in 2003.

Regarding the concerns raised by SE and SAGARPA about the nature of 
GAO's analysis, we believe the report presents a balanced and objective 
description of key Mexican trade measures that affect U.S. agricultural 
exports to Mexico. Consistent with GAO's overarching mission to help 
improve the performance and accountability of U.S. government programs 
and activities, our report provides recommendations to the Department 
of State and USDA to help ensure the successful implementation of 
NAFTA. Since it is outside GAO's jurisdiction to audit foreign 
government programs and procedures, our treatment of Mexican trade 
measures is descriptive not evaluative. We include testimonial, as well 
as other evidence, in our report in order to illustrate the positions 
of various parties. Throughout the report we have included the views of 
responsible Mexican officials and have added clarifications to the 
report in response to specific comments made by these Mexican agencies. 
For example, we added language to the report to clarify that the 
existence of a case under dispute settlement proceedings does not 
necessarily mean a trade partner's actions violate the provisions of 
NAFTA or other trade agreements. Similarly, we eliminated references to 
difficulties related to labeling requirements and import permits, 
which, as USDA officials have acknowledged, have not been used 
frequently by Mexico. Instead we focused only on Mexico's tax on 
beverages containing nonsugar sweeteners. In addition, our report 
covered a number of areas including collaborative activities of U.S. 
agencies in Mexico and concerns about the long-term success of NAFTA, 
as well as Mexican trade measures that impact U.S. agricultural exports 
to Mexico. While we are aware that Mexican agricultural exports to the 
United States also encounter challenges meeting U.S. import 
requirements, these issues were outside the scope of this project. We 
have included language clarifying the scope of our work in this report.

Regarding the point raised by SE and SAGARPA on Mexico's determination 
to proceed with the implementation of NAFTA, our report does not 
question the commitment of Mexican authorities to fulfill their 
obligations under the agreement. However, both U.S. and Mexican 
officials have expressed concerns about how negative perceptions of 
NAFTA may impact successful implementation of the agreement. Some of 
these officials recalled the difficulties experienced at the time of 
the 2003 tariff eliminations, including mass demonstrations against 
NAFTA, calls for a moratorium on implementation of the agreement, and 
pressure to renegotiate the agricultural provisions of NAFTA. We 
believe that in accordance with U.S. government pronouncements 
regarding the importance of NAFTA for U.S. farm interests, it is 
appropriate for U.S. agencies to actively plan to support the 
successful implementation of the agreement.

In addition to these broader comments on the report's presentation and 
approach, SE and SAGARPA provided technical comments and clarifications 
on Mexican agricultural programs, such as clarification on PROCAMPO 
payments, and on the crops included under the Direct Payments for 
Target Income subprograms. We have made a number of changes in the 
report to reflect their comments. Financiera Rural had only one 
technical comment on our representation of that agency's strategic 
plan, which we have incorporated into our report.

As we agreed with your office, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days from the date of this letter. We will then send copies of 
this report to appropriate congressional committees and to the U.S. 
Trade Representative and the Secretaries of the Departments of 
Agriculture and State. Copies will be made available to others upon 
request. In addition, this report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov].

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4347 or at [Hyperlink, yagerl@gao.gov] 
[Hyperlink, yagerl@gao.gov]. Other GAO contacts and staff 
acknowledgments are listed in appendix VIII.

Sincerely yours,

Signed By:

Loren Yager:
Director International Affairs and Trade:

[End of section]

Appendixes:

Appendix I: Objective, Scope, and Methodology:

To obtain information about the progress made, as well as difficulties 
encountered, in gaining market access for U.S. agricultural exports to 
Mexico, we reviewed the commitments in the NAFTA, including the tariff 
elimination schedules for agricultural products. We reviewed official 
documents related to various phases in the implementation of NAFTA and 
met with USDA and USTR officials to document progress made on each 
phase of tariff elimination. We studied trade flows to track changes in 
U.S. agricultural exports to Mexico, both at the aggregate level and at 
the product level using USDA's Foreign Agricultural Trade of the United 
States database. We discussed the limitations and reliability of the 
trade data with USDA officials and determined the trade data reported 
by USDA are sufficiently reliable for the purpose of this report. We 
used various price indexes to adjust the trade value for inflation to 
convert trade values to constant 2003 dollars. We reviewed USDA 
publications on the Mexican market for U.S. agricultural products, and 
we reviewed studies by U.S. government and academic sources on the 
impact of NAFTA on U.S. exports to Mexico. We met with officials from 
USTR, USDA, and various producer groups to ascertain the progress and 
the difficulties in market access for U.S. agricultural exports to 
Mexico. We obtained from USTR a list of trade disputes with Mexico 
since NAFTA and reviewed WTO and NAFTA documentation on these 
agricultural trade dispute settlement cases. While we describe Mexico's 
use of trade measures, we did not evaluate the validity of their 
application. To illustrate the scope and type of market access issues 
faced by U.S. agricultural exports to Mexico, we selected seven 
commodities to analyze and present as case studies. Our analysis and 
criteria for selecting the commodities is presented in appendix II.

In order to review how Mexico has responded to the challenges and 
opportunities presented by free trade in agriculture and explore 
remaining challenges to the successful implementation of NAFTA, we 
reviewed relevant studies and research prepared by the Mexican Ministry 
of Agriculture (Secretara de Agricultura, Ganadera, Pesca y 
Alimentacin-SAGARPA), the World Bank, the United Nations Food and 
Agriculture Organization, and USDA. We conducted an extensive 
literature search, screening the results to identify the most 
appropriate research and studies. We considered various screening 
criteria including source, timing, and venue of publication. We cross 
checked key conclusions in various studies to assess their credibility. 
We reviewed the methodologies described for the studies we report on to 
determine their limitations. We also interviewed several authors of key 
studies we used in our report to clarify our understanding of their 
methodology and their conclusions. Finally, we discussed the 
conclusions of these studies with other experts including agricultural 
researchers and U.S. and Mexican government officials with expertise in 
the area of Mexican agriculture.

We obtained data from SAGARPA and the Mexican National Institute of 
Statistics, Geography, and Information Technology (Instituto Nacional 
de Estadisticas, Geografa, e Informtica) on agricultural production. 
We did not assess the reliability of the production data; however, the 
general trend of production is consistent with what is widely reported 
in other studies. We reviewed official Mexican government documents and 
other studies, which describe the major agricultural policies in Mexico 
since early 1990s. We interviewed current and past SAGARPA officials 
and the officials from the Ministry of the Economy (Secretara de 
Economa-SE), who are familiar with current agricultural programs and 
the evolution of these programs under NAFTA.

We obtained information from USDA agencies (FAS, APHIS, ERS, NASS, ARS, 
FSIS, and AMS) and from FDA on agriculture-related collaborative 
activities they have undertaken in Mexico for the 10 years that NAFTA 
has been in effect (1994 through 2004). This information included 
activity descriptions and funding by agency. To assess the quality and 
reliability of the data submitted by each agency, we interviewed the 
agency officials responsible for the data and reviewed the data 
provided. When we noted discrepancies or gaps in the data, we discussed 
these with the agency officials and obtained corrections and/or 
clarifications. Based on our work, we determined that the data were 
sufficiently reliable to portray overall levels of expenditures and the 
nature of these activities. For USDA agencies, we compiled this data in 
a set of tables presented in appendix IV. These tables reflect funding 
for activities implemented by these agencies from 1994 through 2004; 
however, some of the agency activities started before 1994, while 
others were concluded before 2004. For FDA we present a summary 
description of agency activities in the same appendix.

We met with State Department officials in Washington, D.C., and U.S. 
embassy officials in Mexico to discuss U.S. efforts under the 
Partnership for Prosperity (P4P). We reviewed documents from the 
Department of State on P4P including the 2002 and 2003 P4P reports to 
Presidents Bush and Fox, the P4P Action Plan, testimonies by State 
officials, and press releases on P4P activities. In order to report on 
P4P activities related to agriculture or rural development, we 
discussed agency plans and ongoing activities with USDA, U.S. Agency 
for International Development, and Overseas Private Investment 
Corporation officials. We also discussed the impact of P4P with Mexican 
government officials from SAGARPA, the Mexican Ministry of the Economy 
(SE), the Mexican Ministry of Foreign Affairs (Secretara de Relaciones 
Exteriores), and Mexico's rural lending institution for small and 
medium size farmers (Financiera Rural).

We conducted our review from February 2004 through February 2005 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix II: Case Studies of Selected U.S. Agricultural Exports to 
Mexico:

To illustrate the range of market access barriers faced by certain U.S. 
agricultural exports to Mexico, we selected seven products to analyze 
and present as case studies: apples, beef, corn, high-fructose corn 
syrup (HFCS), pork, poultry, and rice. Each of the case studies 
includes a brief background and history of the exported product's 
experience accessing the Mexican market, a description of the types of 
market access barriers each product faces, and a summary of the current 
status of market access issues. We selected commodities as 
representative of (1) products at various stages of the tariff 
elimination schedule; (2) different agricultural sectors--for example, 
grains (rice), horticultural products (apples), and meat (pork); (3) 
products that face varying types of tariff and nontariff barriers; (4) 
the range of mechanisms used in attempting to settle market access 
disputes; and (5) varying levels of export volume and value. 
Information presented in the case studies is based on our analysis of 
trade data, review of U.S., Mexican, WTO, and NAFTA official documents, 
and interviews with U.S. and Mexican government officials and various 
private sector representatives.

Apples:

Background and Trade Data:

Prior to NAFTA, Mexico restricted access to its fresh apple market 
through import licensing requirements and the application of a 20 
percent tariff. In 1991, Mexico eliminated the licensing requirements. 
As part of its NAFTA commitments, Mexico established TRQs on apples, 
which were to be phased out over a 9-year period and result in duty-
free access for U.S. apple imports by 2003. USDA reports that U.S. 
apple exports to Mexico have exceeded these specified TRQ amounts in 
each of the years following NAFTA's implementation. The United States 
is the world's leading apple producer, and apples comprised the largest 
portion of fruit exports to Mexico in 2003. U.S. apple exports to 
Mexico accounted for nearly 23 percent of U.S. worldwide apple exports. 
Between 1994 and 2003, the total quantity of fresh apple exports to 
Mexico increased by an average of 4.7 percent annually, and the value 
of exports totaled nearly $71 million in 2003 (see fig. 3).

Figure 3: Total Volume of U.S. Fresh Apple Exports to Mexico, 1989-
2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

A key market access issue for U.S. apple exporters is the way Mexico 
has sought to exercise oversight for the application of its 
phytosanitary requirements. Mexico requires phytosanitary certificates 
for U.S. apples due to concerns about apple maggots in shipments. 
According the USDA's Economic Research Service, most countries accept 
U.S. systems approaches for pest management as adequate protection 
against the threat of apple maggot. Mexico, however, requires that 
apples undergo a process called "cold treatment" before U.S. apple 
shipments can be imported into Mexico. Additionally, Mexico required 
that the Mexican government inspect and certify U.S. storage and 
treatment facilities. The treatment and inspection process increased 
U.S. producers' cost of exporting apples to Mexico. In 1998, Mexico 
turned over supervision of the inspection program to USDA. 
Nevertheless, according to the U.S. Apple Association, some apple-
producing states have been effectively shut out of the Mexican apple 
market because of the prohibitive treatment and certification costs. 
For example, the association representative noted that producing states 
like Pennsylvania, the fourth largest apple-producing state in the 
country, cannot recoup the "hundreds of thousands of dollars" of costs 
incurred through these inspections.

In addition to Mexico's phytosanitary treatment and certification 
requirements, Mexico initiated an antidumping investigation against 
U.S. apples in 1997 and imposed a preliminary import duty of more than 
100 percent on Red and Golden Delicious apples. In 1998, the U.S. apple 
industry and the Mexican government signed an agreement suspending this 
duty, and the U.S. industry agreed to comply with a minimum-price 
scheme.[Footnote 37] U.S. apple exports to Mexico declined in 1998 
(when the antidumping duty was in place) but experienced large, 
successive increases in 1999, 2000, and 2001 under the price agreement. 
However, in August 2002, the minimum price scheme was dropped at the 
request of Mexican growers, and Mexico resumed the dumping case and 
imposed antidumping duties of more than 45 percent on U.S. apples. As a 
result, U.S. exports decreased in 2002 and 2003. According to the U.S. 
Apple Association, the timing of the Mexican imposition of the dumping 
duty was notable, since NAFTA's tariff rate quota and duty on apples 
were to be lifted on January 1, 2003. For this reason, the association 
noted that many U.S. apple exporters question the merits of the dumping 
allegations and maintain that Mexico is inappropriately restricting 
market access in order to protect its domestic industry.

Current Status and Future Challenges:

U.S. apple industry representatives note that Mexico's policies 
restrict U.S. producers' access to Mexico's market. The U.S. apple 
industry notes that the treatment certification process takes several 
years and can be prohibitively costly in U.S. states where there are 
fewer producers to share costs. Furthermore, the U.S. apple industry is 
very fragmented, which is a significant challenge in dealing with 
market access problems in Mexico. For example, even though producers 
find the certification process burdensome, the industry does not have a 
joint strategy on how to address this problem.

Beef:

Background and Trade Data:

In 1992, 2 years prior to NAFTA's implementation, Mexico raised tariffs 
on imported beef from zero to 20 percent. Per NAFTA, Mexico immediately 
eliminated these tariffs on imports of most U.S. beef products, and U.S.

beef exports to Mexico increased.[Footnote 38] The recession that 
followed the 1994 peso crisis caused U.S. beef exports to Mexico to 
drop sharply by 1995, and exports did not recover fully until 1997. 
U.S. beef exports have grown steadily since 1995, and USDA notes that 
this increase is linked partially to the continuing improvements in the 
Mexican economy. Between 1994 and 2003, the volume of U.S. beef exports 
to Mexico increased by an average of 21 percent annually, and beef 
exports to Mexico accounted for 22.4 percent of the volume of U.S. beef 
exports worldwide (see fig. 4). The value of exports to Mexico in 2003 
totaled $604 million.

Figure 4: Total Volume of U.S. Beef Exports to Mexico, 1989-2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

Although the volume of U.S. exports to Mexico has been increasing 
steadily over the past 10 years, market access for U.S. producers has 
been affected by antidumping actions and a ban on U.S. beef following 
the discovery in the United States of one cow (originally imported from 
Canada) with bovine spongiform encephalopathy (BSE) or "mad cow 
disease." First, in 1994, the Mexican National Livestock Association 
initiated an antidumping case against certain types of beef imports by 
claiming discriminatory pricing on the part of U.S. exporters. 
Following industry-to-industry negotiations, the U.S. National 
Cattlemen's Beef Association and the Mexican National Livestock 
Association signed a memorandum of understanding that formalized an 
agreement to (1) share U.S. technologies with Mexican producers and (2) 
coordinate both groups' efforts to promote beef consumption in Mexico. 
As a result, the Mexican National Livestock Association dropped the 
dumping petition.

However, in 1998 charges were made once again that the United States 
was dumping beef in Mexico. On August 1, 1999, Mexico announced 
antidumping tariffs that varied by company. Individual U.S. beef 
exporters appealed these tariffs, and on October 10, 2000, Mexico 
published a set of revised antidumping tariffs for certain beef 
exporters. These duties range from zero to 80 cents per kilogram, 
depending on the company and the type of beef. On June 16, 2003, the 
United States requested WTO consultations on Mexico's antidumping 
measures on rice and beef, as well as certain provisions of Mexico's 
Foreign Trade Act and its Federal Code of Civil Procedure.[Footnote 39] 
In addition, a NAFTA Chapter 19 panel is expected to rule shortly on 
whether these duties were applied in accordance with Mexican law.

According to the National Cattlemen's Beef Association, the root of the 
beef trade dispute in Mexico lies in the lack of differentiation 
between the values for various cuts of meat. In Mexico, the different 
cuts of beef generally all have the same value, whereas in the United 
States different cuts of beef have different values. These different 
values have led to antidumping cases against the United States because 
any commodity that sells for less than the value of the product in the 
home country is considered dumping. According to the National 
Cattlemen's Beef Association representative, demand for variety meats 
(such as tripe and liver) is significantly higher in Mexico than it is 
in the United States. Because of these demand conditions, U.S. 
exporters can sell variety meats at a lower price, which leads Mexico's 
industry to believe the United States is dumping these products on the 
Mexican market.

In addition to facing dumping duties, the detection of one case of BSE 
in the United States in December 2003 led Mexico to impose a ban on all 
U.S. beef products. In March 2004, Mexico was the first country to 
reopen its market to certain types of U.S. beef products (U.S. boxed 
beef under 30 months of age), expanding the list of allowable beef 
products in April 2004, and USTR reports that the U.S. government is 
working to re-open the remainder of the market as soon as possible.

Current Status and Future Challenges:

According to producer group officials, market access for U.S. beef 
exports to Mexico has generally been very good, as evidenced by overall 
increases in trade. Both U.S. and Mexican industries plan to continue 
working together to resolve any potential trade disputes through 
industry negotiations. USTR notes that U.S. and Mexican beef and cattle 
industries are increasingly integrated, with benefits to producers, 
processors, and consumers in both countries.

Corn:

Background and Trade Data:

Corn is an important commodity in Mexico; in addition to being a 
dietary staple, white corn is the principal crop for many Mexican small 
farmers, and historically corn production is a fundamental feature of 
Mexican rural culture. Consequently, NAFTA negotiations regarding the 
phase-out of import barriers for corn were particularly sensitive. 
Prior to NAFTA, Mexico restricted access to its corn market through 
import licensing requirements, and there was no guaranteed level of 
access for U.S. imports. During NAFTA negotiations, it was widely 
believed in Mexico that immediate increases in imports of U.S. corn 
would displace Mexican corn producers. As a result, NAFTA negotiators 
agreed to allow Mexico to replace its import licensing requirements 
with transitional TRQs that will be phased out over a 14-year period--
the longest transition period set forth in the agreement.

The United States has been one of the major foreign suppliers of yellow 
(feed) corn to Mexico, and U.S. exports to Mexico comprised 13 percent 
of all U.S. corn exports worldwide in 2003. Between 1994 and 2003, the 
volume of U.S. corn exports to Mexico increased by an average of 18.5 
percent annually (see fig. 5). The value of exports to Mexico in 2003 
totaled $651 million.

Figure 5: Total Volume of U.S. Corn Exports to Mexico, 1989-2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

Although Mexico's removal of restrictive import licensing requirements 
did away with a significant barrier to U.S. access to Mexico's corn 
market, a number of other factors have affected U.S. exports before and 
after NAFTA's implementation. For example, in the early 1990's, Mexico 
lifted a ban on using corn to feed livestock, which immediately 
increased demand for imports of yellow corn from the United States, 
which had been declining for several years. In 2003, yellow feed corn 
exports comprised more than 80 percent of U.S. corn exports to Mexico. 
Additionally, in the years following NAFTA, Mexico has usually allowed 
higher levels of imports than are required under the NAFTA TRQs in 
order to ensure that domestic demand for corn is fully met. Thus, 
Mexico has generally applied much lower tariffs on these additional 
quantities than those set forth under the agreement.[Footnote 40] These 
more liberal market access policies for yellow (feed) corn imports are 
driven in part by a need to provide feed for Mexico's expanding 
livestock industries. Notwithstanding these policies toward feed corn 
imports, a USDA analysis of Mexico's corn market notes that imports of 
white corn (i.e., corn generally used directly for human consumption) 
from the United States have declined since 2000, partly because the 
Mexican government has provided marketing funds to domestic producers 
of white corn. Additionally, USDA reports that in a significant 
departure from past practice, Mexico levied the NAFTA-specified above 
quota tariff rate of 72.6 percent on white corn in 2004. Mexico's tax 
on beverages sweetened with HFCS has also contributed to the decline in 
U.S. corn exports to Mexico. The tax has depressed Mexican production 
of HFCS, which is made from imported corn.

Current Status and Future Challenges:

U.S. exports of corn to Mexico are expected to increase significantly 
as Mexico eliminates the transitional TRQs in 2008. However, some 
industry groups noted concern about Mexico taking other steps to 
protect its sensitive domestic corn market. For example, one U.S. 
industry representative noted that it will be important for the U.S. 
government to ensure that Mexico does not use SPS requirements as a 
barrier to U.S. imports. On the other hand, other observers note that 
an expanding economy in Mexico will increase consumer demand for meat 
and, in turn, continue to increase demand for U.S. corn imports as feed 
for Mexican livestock production.

Additionally, certain farm groups in Mexico have argued that allowing 
duty-free imports of U.S. corn will lead to a total collapse of Mexican 
agriculture, and they have vowed to mount an unprecedented campaign to 
stop the last round of tariff eliminations. Mexican politicians who 
oppose NAFTA note the continuing economic distress in rural areas of 
Mexico and insist on renegotiating the agricultural provisions of the 
agreement to improve the conditions of Mexican farmers. Although the 
total elimination of already low Mexican tariffs on corn may not have 
much economic significance for U.S. producers, failure to comply with 
the final phase of tariff elimination may undercut support for NAFTA 
among U.S. producers who were in favor of the agreement with the 
expectation that it would lead to genuinely free trade. Furthermore, 
U.S. trade officials have expressed serious reservations about any 
attempt to renegotiate the agricultural provisions of NAFTA because it 
could lead to demands to renegotiate other aspects of the agreement and 
undermine the agreement as a model for trade liberalization throughout 
the Western Hemisphere.

High-Fructose Corn Syrup:

Background and Trade Data:

Impediments confronted by U.S. HFCS exports to Mexico are related to 
difficulties encountered by Mexican cane sugar exports to the United 
States. Trade friction between the United States and Mexico over HFCS 
came to a head in 1997, when Mexico initiated an antidumping 
investigation of U.S. exports of this product. Based on the results of 
this investigation, Mexico imposed antidumping duties beginning in 
1998. This triggered a lengthy WTO dispute settlement proceeding, in 
which the United States eventually prevailed in 2001. Thereafter, 
Mexico eliminated its antidumping duties but imposed a tax on beverages 
made with any sweetener other than cane sugar, including HFCS. The 
United States has challenged Mexico's beverage tax in the WTO, and that 
dispute is still pending.[Footnote 41] Mexico defends its beverage tax, 
noting that the United States has not complied with its market access 
commitments with respect to Mexican cane sugar. However, the U.S. 
government has rejected Mexico's arguments linking these two issues.

As shown in figure 6, U.S. exports of HFCS began to decline in 1999 
after Mexico imposed the antidumping duties, and dropped to nearly zero 
after Mexico imposed the beverage tax in 2002.

Figure 6: Total Volume of U.S. Fructose Syrup Exports to Mexico, 1989-
2003:

[See PDF for image]

Note: This graph is for syrup containing more than 50 percent by weight 
of fructose (HS 1702600050).

[End of figure]

Key Market Access Issues:

Market access issues began in 1997 when Mexico imposed preliminary 
antidumping duties on U.S. exports of HFCS. In 1997, Mexico's National 
Chamber of Sugar and Alcohol Industries, the association of Mexico's 
sugar producers, filed a petition in which it claimed that U.S. HFCS 
was being sold in Mexico at less than fair value and that these imports 
constituted a threat of material injury to Mexico's sugar industry. As 
a result of these claims, the Mexican Ministry of the Economy responded 
by imposing antidumping duties on U.S. HFCS. In 1998, USTR invoked a 
WTO dispute proceeding to challenge Mexico's action, and in 2000, a WTO 
panel ruled that Mexico's imposition of antidumping duties on U.S. 
imports of HFCS was inconsistent with the requirements of the WTO 
Antidumping Agreement.[Footnote 42] At that time, Mexico agreed to 
implement the panel recommendation by September 22, 2000. However, on 
September 20, 2000, Mexico issued a new determination and concluded 
that there was a threat of material injury to the Mexican sugar 
industry and that it would maintain the antidumping duties.

The United States maintained that Mexico's new determination did not 
conform to the WTO panel's recommendations and challenged this new 
determination before a WTO compliance panel. The WTO compliance panel 
agreed with the U.S. position. Mexico appealed this ruling. The WTO 
Appellate Body agreed with the compliance panel's conclusions and 
recommended that Mexico comply with its obligations under the WTO 
Antidumping Agreement. While Mexico revoked its antidumping duties on 
HFCS in April 2002, in January of that year the Mexican Congress 
imposed a 20 percent tax on soft drinks and other beverages that use 
any sweetener other than cane sugar, which effectively shut out U.S. 
HFCS from the Mexican market.

The Fox administration acted to suspend the beverage tax from March 6 
through September 2002. Mexico's Supreme Court, however, ruled the 
suspension to be unconstitutional and reinstated the tax effective July 
16, 2002. The United States argues the HFCS beverage tax is 
inconsistent with Mexico's obligations under the WTO, which calls for 
treating imported products no less favorably than comparable domestic 
products. The United States considers that the beverage tax is 
inconsistent because it applies to beverages sweetened with imported 
HFCS, but not to products sweetened with Mexican cane sugar. In June 
2004, the United States challenged Mexico's beverage tax in the WTO.

Current Status and Future Challenges:

The dispute over Mexico's beverage tax is pending before a WTO panel. 
The sugar industry would like to negotiate a resolution to the 
sweetener dispute. At this time, private meetings have taken place 
between sugar producer groups in the United States and Mexico, and the 
industries are working to reach a resolution before 2008.

Pork:

Background and Trade Data:

Prior to 1994, Mexico levied a duty of 20 percent on U.S. pork, but 
under NAFTA, Mexico agreed to establish TRQs to be phased out over a 9-
year period that ended on January 1, 2003. For several categories of 
pork products, U.S. pork exports to Mexico greatly exceed the 
quantitative limits of the TRQs, and Mexico generally allowed the 
additional product to:

enter without applying the over-quota tariff.[Footnote 43] 
Additionally, NAFTA permitted Mexico to establish a special 
agricultural safeguard tariff rate quota for certain cuts of pork, 
under which Mexico can apply higher tariffs if imports of that product 
exceed specified levels.[Footnote 44] If imports rise above that level, 
the duty reverts to the lower of the current Most Favored Nation or pre-
NAFTA levels. The safeguard levels expanded 3 percent each year until 
the provision expired on January 1, 2003.

U.S. pork exports to Mexico have increased significantly since NAFTA, 
with the total volume of U.S. exports rising by an average of 18.5 
percent annually between 1994 and 2003 (see fig. 7). Exports to Mexico 
accounted for 22.3 of U.S. pork exports worldwide, and U.S. exports to 
Mexico totaled about $217 million in 2003.

Figure 7: Total Volume of U.S. Pork Exports to Mexico, 1989-2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

In November 2002, Mexican producers submitted a dumping complaint to 
the Mexican government, alleging that U.S. exporters were engaging in 
price discrimination by selling pork to Mexican buyers at lower prices 
than they would sell to buyers in other countries. On January 7, 2003, 
Mexico initiated the antidumping investigation against U.S. pork. 
According to U.S. pork producers, the Mexican association that 
requested the investigation does not represent the Mexican pork 
industry, and, therefore, did not have a legal right to make the 
request. The producers of pork in Mexico--the slaughterhouses and the 
packers--stated that they do not want the investigation to proceed and 
asked that it be terminated. On May 28, 2004, the Mexican government 
terminated the January 2003 investigation and initiated a more limited 
antidumping investigation on hams only.

Even after the antidumping case was filed against U.S. pork, Mexico 
continued to be the second major market for U.S. pork exports. 
Furthermore, USDA officials stated that any decreases in pork exports 
due to the case were more than offset by the increase in demand for 
pork following Mexico's ban on U.S. beef products after a case of BSE 
was discovered in the United States. In addition, USDA noted that 
demand for U.S. pork exports to Mexico correlates closely to income 
growth in that country (i.e., the rise of the middle class). Thus, 
while Mexico's tariff reductions have been an important contributing 
factor to the growth of U.S. pork exports to Mexico, the far more 
significant drivers of export growth have been the rapid recovery of 
the Mexican economy following its recession in 1995 and continuing 
income and economic growth since then.

Current Status and Future Challenges:

The U.S. government has questioned the basis of the May 2004 ham 
antidumping investigation. Furthermore, USTR asserts that the United 
States is actively working to prevent potential actions that Mexico may 
take on exports of U.S. pork. USTR officials believe that Mexico's 
January 2003 initiation of a pork dumping investigation and a May 2004 
initiation of a ham dumping investigation may violate WTO rules and 
questions the statistics being used by the Mexican government to 
determine the level of imports. USTR has engaged the Mexican government 
to terminate the ham-dumping investigation, to resolve differences on 
trade statistics, and to seek alternatives to trade restrictive 
measures. Despite the antidumping dispute, Mexico and the United States 
have pledged to build on their long history of cooperation regarding 
swine and pork bilateral trade on the basis of equal and mutual benefit.

Poultry:

Background and Trade Data:

Prior to NAFTA, Mexico restricted access to its poultry market through 
import licensing requirements and 10 percent tariffs on imports. As 
with other products subject to import licensing, Mexico replaced these 
barriers with TRQs as part of its NAFTA commitments. NAFTA called for 
the TRQs to be phased out over a 9-year period, with duty-free access 
for U.S. poultry by 2003. Per NAFTA, the larger portion of the tariff 
cuts was to be implemented in the latter half of the phase-out period-
-a process referred to as "backloading." Mechanically deboned meat, 
which is used by Mexican sausage manufacturers, comprises the most 
significant portion of U.S. poultry exports to Mexico. Since NAFTA, the 
Mexican government has chosen not to impose the above-quota tariff on 
this commodity due to the Mexican sausage industry's high demand for 
the product, and, as a result, U.S. exports have routinely exceeded the 
TRQ levels set forth in the agreement. Between 1994 and 2003, imports 
of U.S. dark meat chicken parts have also generally exceeded the 
transitional TRQ levels. The United States is the major foreign poultry 
supplier to Mexico's market, and Mexico is typically among the top 
three markets worldwide for U.S. poultry exports. From 1994 to 2003, 
the volume of U.S. poultry meat exports to Mexico increased by an 
average of 5.7 percent annually (see fig. 8). U.S. exports to Mexico 
accounted for 11.4 percent of U.S poultry meat exports worldwide, and 
the value of U.S. poultry exports to Mexico totaled about $260 million 
in 2003.

Figure 8: Total Volume of U.S. Poultry Meat Exports to Mexico, 1989-
2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

Demand for certain U.S. poultry products in Mexico was driven, in part, 
by insufficient domestic poultry production in Mexico. Additionally, 
because U.S. domestic demand for dark meat is low relative to Mexico's 
consumer demand, U.S. producers have been able to keep dark poultry 
meat prices relatively low and thus attractive to Mexican buyers. Over 
the years since NAFTA's implementation, Mexico's domestic poultry 
industry has expanded, and concern about U.S. competition among Mexican 
producers has increased commensurately.

As the end of Mexico's transitional TRQ on poultry products drew near 
in 2002, the Mexican poultry industry petitioned the Mexican government 
to apply a safeguard on imports of U.S. chicken leg quarters. The 
petitioners argued that the end of the TRQ would result in an import 
surge from the United States and injury to Mexico's domestic industry. 
Article 703 of NAFTA would have permitted Mexico to impose duties of up 
to 240 percent on U.S. poultry imports, if NAFTA's conditions for a 
safeguard were met. Rather than face such potentially high tariffs and 
a disruption to U.S. exports, U.S. producers, in industry-to-industry 
negotiations with the Mexican petitioners, agreed to a more favorable 
regime.

In July 2003, Mexico issued a final safeguard determination that 
imposed a TRQ which allows the quota to expand each calendar year 
through 2007, at which point the duties will be eliminated. The within-
quota duty is zero, and the initial over-quota duty was 98.8 percent, 
which declines each year until reaching zero on January 1, 2008. The 
U.S. and Mexican governments agreed on a package of compensation 
measures in response to the safeguard. In particular, Mexico agreed not 
to impose any other restrictions on U.S. poultry products and to 
eliminate certain SPS restrictions. The U.S. government also agreed, 
following consultations with U.S. industry, to consent to Mexico's 
application of the safeguard past the expiration of the transition 
period.

Some poultry industry representatives noted that settlement of the 
poultry safeguard issue brought some initial criticism from other U.S. 
producer groups, who maintained that the settlement set a precedent for 
Mexico to force renegotiation of its NAFTA commitments. However, USTR 
officials stated that the United States will not consider any 
renegotiation or rescission of Mexico's NAFTA commitments and views the 
poultry settlement as a unique workable solution that forestalled 
possible significant disruption to U.S. exports. They doubted a similar 
outcome could be achieved in other industries.

Current Status and Future Challenges:

USDA reports that domestic poultry production in Mexico continues to 
expand. USDA and industry representatives said that the additional 
protection for Mexican producers established under the safeguard 
settlement will provide Mexican producers additional time to prepare 
for free trade. USDA also notes that demand for poultry, combined with 
an expanding Mexican economy and a removal of the ban on some U.S. 
poultry exports, will continue to increase demand for U.S. poultry 
products. Nevertheless, some U.S. industry representatives remain 
concerned and noted that once the TRQ expires, Mexican authorities may 
employ other measures, such as sanitary restrictions, as a means to 
constrain U.S. access to Mexico's market.

Rice:

Background and Trade Data:

The United States is the primary supplier of rice to Mexico, mostly due 
to the fact that Mexico has banned or placed strict phytosanitary 
standards on imports of rice from Asian countries since the early 
1990s.[Footnote 45] The United States exports both rough (i.e., 
unprocessed) rice and milled (i.e., processed) rice to Mexico, although 
demand for rough rice is much higher. As a result of the lack of supply 
from Asian producers and the high demand for rough rice, rough rice 
accounted for about 90 percent of the total volume of U.S. rice exports 
to Mexico in 2003. Prior to NAFTA's implementation, Mexico levied 
duties of 20 percent on brown and milled (i.e., processed) rice and 10 
percent on rough (unprocessed) rice. Under NAFTA, Mexico agreed to 
phase out rice tariffs over a 9-year period, with all tariffs to be 
eliminated by 2003. With the phasing out of tariffs on rice, the volume 
of U.S. exports has increased by an average of 14.4 percent annually 
from 1994 to 2003 (see fig. 9). U.S. rice exports to Mexico accounted 
for 17.7 percent of U.S. rice exports worldwide, and exports to Mexico 
totaled about $140 million in 2003.

Figure 9: Total Volume of U.S. Rice Exports to Mexico, 1989-2003:

[See PDF for image]

[End of figure]

Key Market Access Issues:

In December 2000, Mexico initiated an antidumping investigation on 
imports of long-grain milled rice from the United States. Mexican rice 
millers (who process rice that competes with U.S. milled rice imports) 
alleged that U.S. milled rice is being sold in Mexico at a prices less 
that its fair market value. The Mexican government subsequently levied 
antidumping duties in April 2000 and June 2002 on specific U.S. rice 
imports. A U.S. rice industry representative told us that the U.S. rice 
industry attempted to resolve the issue through the industry-to-
industry negotiations but that the negotiations were unsuccessful. 
Following the industry negotiations, the United States formally 
requested WTO consultations with Mexico in June 2003. These 
consultations were held from July 31 through August 1, 2003, on the 
basis of concerns regarding Mexico's methodology for determining injury 
to the domestic market and for calculating dumping margins. WTO 
consultations failed to resolve the issue, and in February 2004 a WTO 
dispute panel was formed to resolve the case.[Footnote 46] The U.S. 
rice industry representative said that several other U.S. commodity 
groups were supporting this case in the WTO because the case deals with 
broad issues related to Mexico's application of the antidumping law 
that could affect their exports as well.

Current Status and Future Challenges:

A ruling on the WTO dispute is expected in April 2005. Notwithstanding 
the outcome of the case, U.S. rice exporters generally benefit from 
preferential access under NAFTA and Asian exporters' restricted access 
to the Mexican market. USDA reports indicate that U.S. exporters could 
face increased competition in the milled rice market in Mexico should 
Asian exporters satisfactorily meet Mexico's phytosanitary concerns.

[End of section]

Appendix III: Three Major Mexican Agricultural Programs:

Recognizing the challenges and anticipating the opportunities that 
market reforms and free trade posed for its farm sector, the Mexican 
government has implemented several programs to help its farmers adjust 
to changing economic conditions. The three main support programs 
implemented since the early 1990s are PROCAMPO, marketing support, and 
Alianza.

PROCAMPO (Programa de Apoyos Directos al Campo):

* Date initiated: 1994:

* Budget: PROCAMPO is the largest agricultural support program, 
accounting for 35 percent of Mexico's Agriculture Ministry's (SAGARPA) 
budget in 2003, around $1.27 billion.

* Goal: PROCAMPO is a 15-year program that provides transitional income 
support to Mexican agriculture as it undergoes structural changes in 
response to market conditions and the phasing out of trade barriers 
under NAFTA. The political objective is to manage the acceptability of 
the free trade agreement among farmers and to prevent extensive levels 
of poverty and out-migration.

* How it operates: The program makes payments on a per-hectare basis to 
any producer who cultivates a licit crop on eligible land or utilizes 
that land for livestock or forestry production or some ecological 
project. Eligible land is defined as that which has been cultivated 
with corn, sorghum, beans, wheat, barley, cotton, safflower, soybeans, 
or rice in any of the three agricultural cycles before August 1993. 
There are three types of PROCAMPO payments: preferential, traditional, 
and capitalized. Preferential payment is for producers with fewer than 
5 hectares in nonirrigated lands who only produce in the spring-summer 
cycle. For the spring-summer 2003 agricultural cycle, the payment 
levels equaled 1,050 Mexican pesos ($100) per hectare. The traditional 
payment is for the rest of the producers. It was 905 pesos ($86) per 
hectare in 2003. The capitalized payment is made under certain 
conditions to producers who request the sum of their future PROCAMPO 
payments.

* Beneficiaries: During 2001, 2.7 million producers with a total of 
13.4 million hectares received PROCAMPO payments. Around 75 percent of 
farmers in the PROCAMPO database have less than 5 hectares of land.

* Changes in the program: There was a proposal in November 2002, as 
part of a broader Mexican government initiative for rural support, to 
update the payments according to yields. However, this action was never 
put into practice. Another program will be created for producers who 
are not currently registered in PROCAMPO, who also may be considered 
for assistance to smooth out income fluctuations. Also, the National 
Agreement's emergency spending proposal contains 650 million pesos ($62 
million) for the inclusion of additional land on the PROCAMPO 
roster.[Footnote 47] According to Mexican officials, even where there 
are new producers enrolling, the total benefiting area has not changed 
because those new producers are filling the place left by former 
producers whose lands are no longer eligible to receive support.

* Impact: PROCAMPO has become an important source of some rural 
households' income, and it may have income multiplier effects when 
recipients put the money they receive to work to generate further 
income. The Mexican government reported that between 1989 and 2002 
incomes from agricultural businesses have lost importance, while other 
sources, such as government support programs, remittances, salaries, 
and wages, have increased their share in rural households' income. 
Scholars have found payment from PROCAMPO has forestalled the income 
decline of subsistence farmers. In addition, scholars found that 
payment from PROCAMPO generated an income multiplier effect, which 
meant that the PROCAMPO payment was used productively and generated 
additional income for rural households. However, scholars believe that 
the level of payment from PROCAMPO was not large enough to offset the 
risks of switching to more profitable crops, which is part of the goals 
of the marketing support program (discussed below).

Marketing Support and Regional Market Development Program (Programa de 
Apoyos Directos al Productor por Excedentes de Comercializacin para 
Reconversin Productiva, Integracin de Cadenas Agroalimentarias y 
Atencin a Factores Crticos, formerly Programa de Apoyos a la 
Comercializacin y Desarrollo de Mercados Regionales):

* Date Initiated: 1991:

* Budget: The marketing support program is the second largest 
agricultural program. Marketing Support and Regional Market Development 
Program accounts for about 16 percent of SAGARPA's budget. For 2003, 
the budget was around $580 million.

* Goal: The program supports various aspects of agro-marketing and 
commerce. The Agricultural Marketing Board (ASERCA) was created to 
substitute the traditional direct intervention that the government 
formerly made through a parastatal state trading enterprise for sorghum 
and wheat.

* How it operates: The program has seven subprograms: (1) direct 
payment to producers, (2) price supports, (3) collateral loans, (4) 
crop conversion, (5) other types of support, (6) slaughter house 
certification, and (7) special support for corn. The major subprogram 
is the direct payment to producers. This program provides payments to 
producers of rice, corn, wheat, sorghum, barley, canola, copra, 
peanuts, cotton, and safflower in certain areas, usually on a per-ton 
basis.

* Beneficiaries: Beneficiaries of the marketing support program on 
average have more land than PROCAMPO payment recipients. According to 
Mexican government documents, around 22 percent of the respondents to 
its annual survey of the marketing support program have fewer than 5 
hectares, while almost half have more than 15 hectares. In 2004, the 
program supported 240,000 producers.

* Changes in the program: In 2003, Mexican farmers asked for support 
that would "mirror" what was provided U.S. farmers under the U.S. Farm 
Bill, which led the Mexican government to establish "target income" 
support. The new program has seven subprograms including direct 
payments for (1) target income, (2) slaughtering in certified slaughter 
houses, (3) accessing domestic forages, (4) crop conversion, (5) price 
hedging, (6) pledging, and (7) other specified activities. 
Additionally, barley, copra, and peanuts are no longer on support list. 
For a period of 5 years, the government plans to guarantee a target 
income, expressed per ton, for producers of certain grains and 
oilseeds. Nearly 17 billion Mexican pesos ($1.6 billion) have been 
designated for this program. In determining whether a producer has 
reached the target income, the government evaluates a producer's income 
from selling on the market, and if the income from selling on the 
market falls short of the target income, the government will provide 
additional support to ensure that farmers' incomes reach the set 
target. Under the former program, just a few states were able to 
request support, while the new program makes payments to producers with 
commercial surpluses in all states.

* Impact: The program has had an impact on crop patterns and migration. 
The "target price" program has led to concentration in basic crop 
production instead of crop diversification. Mexican officials hope the 
new "target income" approach will help farmers to be more responsive to 
the market conditions. A Mexican official document points out that the 
program is an important factor in mitigating migration from the 
countryside, but the document also recognizes that the program did not 
succeed in integrating farmers into the marketing chain. Thirty percent 
of the respondents to the program annual survey said they would have 
sought employment somewhere else if they had not received this 
assistance. A USDA study of grain production finds that the marketing 
supports, along with the constitutional reforms that allow the rental 
of ejidal lands, have facilitated the emergence of large-scale farms of 
corn and dried beans.

Alianza (Alianza para el Campo):

* Date initiated: 1996:

* Budget: Alianza accounts for about 15 percent of SAGARPA's budget, 
about $570 million in 2003.

* Goal: The goals of the programs are to boost agricultural 
productivity and promote the transition to higher value crops. The 
objectives include increasing producer income, improving the balance of 
trade, achieving an agricultural production growth rate higher than the 
population growth rate, and supporting the overall development of rural 
communities.

* How it operates: The programs were grouped under four categories: 
agriculture, livestock, phytosanitary, and technology transfers. 
Activities include better use of water and fertilizer, adoption of 
improved seeds, better disease and pest control practices, improved 
genetic quality of crops and livestock, improved cattle stocks, better 
health and sanitation practices, and pasture development and related 
infrastructure development for increased production. These programs are 
decentralized and are financed jointly by federal and state governments 
and producers.

* Beneficiaries: The evaluation done by the United Nations Food and 
Agriculture Organization (FAO) found that the program serves farmers 
with various socio-economic backgrounds, educational levels, ages, farm 
size, and income levels. The FAO evaluation also found that medium size 
producers have benefited the most from the agriculture program, and 24 
percent of small farmers have benefited.

* Changes: In 2002, for the first time, general objectives were 
established for all the sub programs. These objectives are to (1) 
increase income, (2) diversify employment options, (3) increase 
investment in rural development, (4) strengthen producer group 
organizations, and (5) advance sanitary standards. To achieve these 
objectives, strategies were established to integrate standards, bring 
together regional producer groups, and discuss important issues such as 
land and water use. Also in 2002, there was recognition by the 
government of a need to transfer technology and investment to the rural 
sector.

* Impact: The FAO evaluation pointed out some benefits from Alianza. 
For example, technology helped certain areas get access to water. 
Alianza also created a forum to consolidate processes of participation 
and implementation of different policies for the agricultural sector, 
allowing the participation of the state and producers in the 
conversation. The same evaluation pointed out that the additional 
employment generated from the program was modest.

[End of section]

Appendix IV: U.S.-Mexico Collaborative Activities Benefit Agricultural 
Trade (1994-2004):

While U.S. development assistance to Mexico has been limited, U.S. 
agencies have undertaken numerous collaborative efforts that benefit 
both U.S. and Mexican agricultural interests. Most of these efforts 
have been led by the United States Department of Agriculture (USDA), in 
conjunction with its Mexican counterparts, in support of overall 
agricultural production and trade objectives. USDA's Foreign 
Agricultural Service officials noted that historically USDA has had a 
very strong collaborative relationship with Mexico's Ministry of 
Agriculture. USDA's Animal and Plant Health Inspection Service (APHIS) 
has invested more funds in collaborative efforts with Mexico than of 
any USDA agency, about $280 million, since NAFTA was implemented. 
Besides APHIS's collaborative activities, six other USDA agencies--the 
Economic Research Service (ERS), the Agricultural Research Service 
(ARS), the Foreign Agricultural Service/International Cooperation and 
Development (FAS/ICD), the Agricultural Marketing Service (AMS), the 
Food Safety and Inspection Service (FSIS) and the National Agricultural 
Statistics Service (NASS)--have participated in agricultural 
collaborative projects in Mexico. However, funding for collaborative 
activities in Mexico from these agencies has been very modest, about 
$7.5 million combined over the past 10 years. In addition to 
collaborative efforts implemented by USDA agencies, the Food and Drug 
Administration (FDA) has also had a role in activities that benefit 
Mexican agriculture.

Animal and Plant Health Inspection Service (APHIS):

In the course of fulfilling its responsibilities of protecting and 
promoting U.S. agricultural health, APHIS has collaborated with Mexico 
for over 50 years (see table 3). APHIS has also implemented programs 
that facilitate agricultural trade from Mexico, such as its 
preclearance programs. Furthermore, APHIS has been by far the U.S. 
agency that has invested the most money in agricultural collaborative 
efforts with Mexico, the bulk of it on its Medfly and Screwworm 
eradication programs. APHIS reported spending a total of about $286 
million on its plant and animal health activities in Mexico since the 
implementation of NAFTA.

Table 3: Animal and Plant Health Inspection Service (APHIS) Assistance 
and/or Collaborative Activities in Mexico, 1994-2004:

Activity/Program type: Plant health;
Description of activity: Medfly: A cooperative program between the USDA 
and the governments of Mexico, Guatemala, and Belize on the Medfly 
(Moscamed in Spanish) program to eradicate and control the 
Mediterranean fly, which would cause $2 billion in losses if 
established in the United States. Moscamed's current top priorities are 
to eradicate the Medfly from Chiapas, Mexico, and move the barrier 
south into Guatemala in an effort to eradicate the Medfly from Central 
America and establish a sustainable Medfly barrier at the Darien Gap in 
Panama, thus providing more secure prevention against a Medfly 
infestation of the United States. To achieve this goal Moscamed is 
using a two-stage strategy. First, Moscamed sprays Spinosid, a newly 
developed organic bait spray. The second phase is the sterile insect 
technique in which flies are produced at a facility and then 
sterilized. Male flies are then released and compete with wild male 
flies. Because the sterilized flies are unable to reproduce, the 
population drops dramatically without continuous pesticide use;
Time frame: Program began in Mexico in 1977; 
Budget 1994-2004: $113 million (estimate).

Activity/Program type: Plant health;
Description of activity: Mexfly: This program maintains Mexican fruit 
fly detection programs in northern Mexico and Baja California, controls 
outbreaks along the border in coordination with Mexico's Plant Health 
agency (Sanidad Vegetal) and provides year-round aerial releases of 
sterile flies. A new center is planned to coordinate sterile fly 
releases in northern Tamaulipas along the border U.S.-Mexican border;
Time frame: 1969;
Budget 1994-2004: $8.1 million (estimate).

Activity/Program type: Plant health;
Description of activity: Pink Bollworm/Boll Weevil: The goal of this 
program is eradication of the boll weevil and pink boll worm from the 
northern, cotton-producing areas of Mexico and maintenance of an 
effective detection and control program in the Juarez Valley, the 
Ascension area, and Meoqui Chihuahua;
Time frame: 1986;
Budget 1994-2004: $1.6 million (estimate).

Activity/Program type: Plant health;
Description of activity: Hydrilla: This program works to progressively 
eradicate the noxious weed Hydrilla from irrigation systems in the 
Mexicali Valley using mechanical extraction and sterile triploid grass 
carp;
Time frame: 1985;
Budget 1994-2004: $593,000 (estimate).

Activity/Program type: Plant health;
Description of activity: Mexican Mango Preclearance Program: APHIS 
requires that Mexican mangoes be treated before entering the United 
States. APHIS personnel in Mexico supervise each treatment. 
Approximately 38 million boxes of Mexican mangoes were exported to the 
United States last season;
Time frame: 1973;
Budget 1994-2004: Mexican producers pay APHIS for these services.

Activity/Program type: Plant health;
Description of activity: Mexican Avocado Program: APHIS personnel 
inspect Mexican avocadoes before they enter the United States. Last 
season, exports totaled approximately $95 million. A recently approved 
APHIS rule (effective January 31, 2005) is expect to increase Mexico's 
avocado exports, bringing revenues up to $300 million;
Time frame: 1997;
Budget 1994-2004: [Empty].

Activity/Program type: Plant health;
Description of activity: Mexican Citrus: APHIS personnel treat Mexican 
citrus before entering the United States. Last season a total of 
600,171 boxes were exported to the United States with a commercial 
value of $3.9 million;
Time frame: 1960s;
Budget 1994-2004: [Empty].

Activity/Program type: Animal health;
Description of activity: Screwworm: The screwworm program is an 
eradication program which consists of cooperative programs with Mexico, 
countries of Central America, and Panama. The program has eradicated 
the pest up to the narrowest point in Panama. The screwworm production 
facility in Tuxtla-Gutierrez, Mexico operated in conjunction with the 
Mexican government remains the supplier of sterile flies, while APHIS, 
in cooperation with the Government of Panama completes construction of 
a state-of-the-art sterile fly-rearing facility in Panama, which will 
provide flies to maintain the barrier. The Screwworm Eradication 
Program uses a highly sophisticated technique to sterilize adult flies. 
The program disperses sterile flies where screwworm flies are 
indigenous. The sterile males mate with fertile wild females which 
results in nonviable egg masses and interrupts the insect's life cycle. 
Additionally surveillance and cooperative agreements maintain constant 
field surveillance;
Time frame: Program began in Mexico in 1972;
Budget 1994-2004: $157 million (estimate).

Activity/Program type: Animal health;
Description of activity: Exotic Animal Disease Commission (EADC): This 
Mexico-U.S. Commission was organized to eradicate and control foot and 
mouth disease (FMD). Freedom from FMD has made it possible for Mexico 
to trade cattle, other ruminants, and their products. Mexico exports 
more than one million head of cattle to the United States annually. The 
commission expanded its operation to other economically important 
animal and poultry diseases like avian influenza, exotic Newcastle 
disease, and, more recently, bovine spongiform encephalopathy (mad cow 
disease). Through the EADC, Mexican farmers have an avenue to trade 
with the United States once diseases are eradicated and prevented from 
entering Mexico;
Time frame: 1947;
Budget 1994-2004: $5.61 million (estimate).

Activity/Program type: Animal health;
Description of activity: Tuberculosis and brucellosis: It is a 
requirement that these diseases be excluded from animals imported by 
the United States. Mexican animals often have these diseases. Through 
APHIS programs in cooperation with Mexico's Ministry of Agriculture, 
Mexico regionalizes the diseases in order to be able to export animals 
to the United States. APHIS also conducts training programs for Mexican 
veterinarians in the diagnosis and epidemiology of tuberculosis and 
brucellosis;
Time frame: N/A;
Budget 1994-2004: $200,000.

Activity/Program type: Animal health;
Description of activity: Rabies: Mexican farmers lose money in animal 
deaths and are themselves also at risk because of this disease. APHIS 
funding supports training at the U.S. Centers for Disease Control, 
salaries, travel, and office expenses. Since rabies is not specifically 
screened by U.S. import requirements, this program will decrease risk 
of rabid bovines being exported from Mexico to the United States. 
Wildlife along the Mexico-U.S. border is also a known reservoir for 
this disease. This situation prevents total eradication of rabies in 
the United States;
Time frame: 2004;
Budget 1994-2004: Spending in Mexico $90,000.

Activity/Program type: Total;
Description of activity: [Empty];
Time frame: [Empty];
Budget 1994-2004: $286,183,000.

Source: GAO. based on APHIS data.

[End of table]

Economic Research Service (ERS):

Since 1996, ERS has spent $2.5 million in funding to implement the 
Emerging Markets Program to enhance Mexico's capacity to collect, 
analyze, and disseminate agricultural information.[Footnote 48] ERS 
officials said that Mexico's enhanced data-gathering and reporting 
capability also benefits the USDA because reliable information allows 
the agency to make better informed decisions on bilateral agricultural 
trade. For a full list and descriptions ERS activities, see table 4.

Table 4: USDA Economic Research Service (ERS), Collaborative Activities 
with Mexico, 1994-2004:

Activity/Program type: Emerging Markets Project;
Description of activity: Mexico's annual agricultural outlook forum: 
USDA assisted in the initiation of Mexico's first outlook forum in 
2001. It organized the first plenary session, showcasing ERS's short-
and long-term commodity projections and U.S. farm policy analysis. It 
organized similar sessions for annual forums in the ensuing 3 years, 
2002-2004;
Time frame: 2001-2004;
Budget from 1994-2004: $2.5 million.

Activity/Program type: Emerging Markets Project;
Description of activity: ERS poultry team works on follow-up analysis: 
In February 2003, an ERS poultry team visited Monterrey, Guadalajara, 
and Mexico City to gather price and other information and interview 
government and private sector officials involved at different levels of 
Mexico's poultry meat marketing system. The objectives were to analyze 
the current broiler meat market conditions/structure in Mexico, 
including analysis of costs of production and the shift in demand 
toward parts versus whole birds;
to develop a flow chart describing chicken meat marketing channels;
and to analyze the future prospects of Mexico's poultry sector, 
including production, consumption, and trade;
Time frame: 2003;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Mexico's first regional food outlook forum: In 
November 2002, ERS analysts participated in Mexico's first regional 
agricultural outlook forum in Mazatlan, Sinaloa. The ERS panel covered 
the long-term outlook for global food and agricultural markets, 
provisions of the new U.S. farm bill and its impact on Mexico, and the 
expected impacts of the removal of tariffs on most food and 
agricultural products in 2003 under NAFTA;
Time frame: 2002-2003;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Joint pork and poultry analysis: In August 
2002, ERS and the Mexican Ministry of Agriculture (SAGARPA) presented 
the findings of a joint ERS-SAGARPA research project about economic 
challenges facing the Mexican pork and poultry industries. This 
briefing was part of a high-level meeting between Mexican and U.S. 
delegations headed by Under Secretaries Mayorga and Penn. The USDA and 
SAGARPA research teams submitted individual reports and agreed to an 
executive summary containing findings and policy options from the two 
reports;
Time frame: 2002;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Transportation initiative: The project 
sponsored a workshop in Laredo, Texas, in January 2001. According to 
information presented at the workshop, while incremental measures such 
as streamlining and automating customs clearance, expanding border 
facilities, and improving infrastructure will continue to reduce the 
effects of transportation bottlenecks, two key issues will affect the 
next generation of growth in U.S.-Mexican food and agricultural trade: 
1) the development of Mexico's rail system, spurred on by the 
privatization in the second half of the 1990s and greater integration 
with the U.S. and Canadian rail systems, and 2) the liberalization of 
truck access;
Time frame: 2001;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Analysis of NAFTA integration: The project 
provided major support for the U.S.-Mexico-Canada conference entitled, 
"North American Integration and Its Impact on the Food and Fiber 
System" held November 2000 in Washington, D.C. This activity focused on 
NAFTA impacts on the rural United States, Mexico, and Canada--including 
price convergence, food quality standards harmonization--and 
measurement and analysis of the ways in which the NAFTA partners are 
becoming more integrated. In September 2003, ERS published a synthesis 
report that identifies obstacles that continue to constrain markets in 
North America from functioning in unison, gauges the progress in 
uniting those markets, and identifies challenges and opportunities that 
could deepen market integration in North American agriculture. The 
Emerging Markets Office-funded workshop and the synthesis report were 
the catalysts for the establishment of the tricountry North American 
Agrifood Market Integration Consortium and its first forum in May 2004 
in Cancun, Mexico;
Time frame: 2000-2004;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Commodity analysis: To enhance SAGARPA's 
ability to produce reports for a wide audience in the United States and 
Mexico, ERS initiated and collaborated in updating a report series for 
11 commodities (corn, wheat, sorghum, poultry, dry beans, pork, beef, 
dairy, eggs, apples, and honey) starting in 1997. The dissemination of 
these reports grew to about 800 copies per report, with broader 
dissemination via the Internet and through events like the annual 
Outlook Forum. SAGARPA released updated reports on corn, sorghum, and 
horticultural products at the 2004 forum;
Time frame: 1997-2004;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Data sharing: Under the Emerging Markets 
Project, file transfer protocol was set up to share information on 
agricultural production in Mexico and on U.S. trade. ERS has access to 
SAGARPA's Agricultural Information System (SIACON). This system covers 
production data for livestock products and crops and farm level prices. 
The data are available by state, irrigated and nonirrigated area, and 
different seasons and agricultural year from 1980 through 1998. ERS now 
has access to the Bank of Mexico's National Economic Structure 
Information System (SINIEE), with over 23,000 data series, including 
producer and consumer prices for many agricultural and food products;
Time frame: 1997-2004;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Effects of food quality management systems on 
U.S.-Mexico trade: The project evaluated the trade impacts on food 
sector businesses in the United States and Mexico of implementing 
quality management systems, both mandatory and voluntary. Information 
was collected via a survey of the costs and benefits of these quality 
management systems. About 300 businesses in the United States were 
surveyed. The project also compiled a list of Mexican firms with 
assistance from the U.S. embassy in Mexico City;
Time frame: 2002;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Transformation of the Mexican produce 
distribution system: The Mexican produce distribution system is in the 
midst of major structural change. Small, specialized produce shops or 
stalls still account for the bulk of consumer produce purchases, but 
supermarket chains are rapidly gaining market share. A similar 
transformation occurred in U.S. produce markets from 1946 through 1965. 
The shift in food demand toward greater diversity and the upgrading of 
diets will likely create new opportunities for exporters in supplying a 
variety of niche markets and may require dealing with a different group 
of importing entities than U.S. exporters have historically targeted. 
The AMS report entitled Mexico's Changing Marketing System for Fresh 
Produce. Emerging Markets, Practices, Trends, and Issues, which was 
published in October 2002, highlights these findings;
Time frame: 2002;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: A comparison of food assistance programs in 
Mexico and the United States: U.S. food assistance programs tend to be 
counter-cyclical (as the economy expands, food assistance expenditures 
decline and vice versa). Mexican food assistance programs appear to be 
neither counter-nor pro-cyclical. Food assistance programs have less 
impact on the extent of poverty in Mexico than in the United States, 
primarily because the level of benefits as a percentage of income is 
much lower in Mexico and because a much higher percentage of eligible 
households in the United States receive benefits from food assistance 
programs. These findings were published in the ERS report A Comparison 
of Food Assistance Programs in Mexico and the United States, which was 
published in July 2000;
Time frame: 2000;
Budget from 1994-2004: [Empty].

Activity/Program type: Emerging Markets Project;
Description of activity: Food safety and trade--the impact of the 
cyclospora problem in Guatemala on the raspberry Industry in Mexico and 
the United States: The project examined the impact of a food safety 
problem in Guatemala on the international raspberry market. Mexico, 
Guatemala, and Chile are the major raspberry exporters to the United 
States. Even though the United States, Mexico, and Chile did not 
themselves have food safety problems with raspberries, the cyclospora 
problem in Guatemala had a significant and sustained impact on their 
industries and on trade patterns. These findings were presented as a 
case study at the International Agricultural Trade Research Consortium 
meetings in Montreal in June 2000;
Time frame: 2000;
Budget from 1994-2004: [Empty].

Source: GAO, based on ERS data.

[End of table]

Agricultural Research Service (ARS):

In June 1998, ARS and Mexico's Agriculture Research Institute, 
Instituto Nacional de Investigaciones Forestales, Agriclas y Pecuarias 
(INIFAP), signed a Letter of Intent to promote U.S.-Mexico 
collaboration in agricultural research programs. Since then, ARS has 
spent about $2.3 million on several collaborative projects involving 
ARS and Mexican scientists. According to ARS officials, it is important 
for the United States that scientists in Mexico have academic 
backgrounds similar to their American counterparts' in order to reach 
common solutions to problems that impact agriculture in both countries. 
For a full list and descriptions ARS activities, see table 5.

Table 5: USDA Agricultural Research Service, Collaborative Activities 
with Mexico, 1994-2004:

Activity/Program type: Biotechnology;
Description of activity: Preserving corn germplasm: The North Central 
Plant Introduction Station has a long-standing collaboration with the 
International Maize and Wheat Improvement Center (CIMMYT), based near 
Mexico City, to exchange germplasm genetic resources. There is mutual 
regeneration and seed exchange on a periodic basis. ARS provides long-
term storage and preservation of germplasm accessions (ongoing);
Time frame: 2001-2006
Budget from 1994-2004: $2 million.

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: Molecular/
biotechnology corn research: ARS, Raleigh, North Carolina, collaborates 
with the University of Guadalajara on scoring Mexican corn populations 
for desirable traits, developing molecular markers and on teosinte (a 
close relative of corn) diversity. ARS, Columbia, Missouri, trained a 
CIMMYT scientist on molecular marker techniques and genome database 
research. ARS is cosupporting CIMMYT efforts to mirror the U.S. corn 
genome database (MaizeDB) and to integrate CIMMYT's available crop and 
molecular information. ARS, Ames, Iowa, is collaborating with CIMMYT on 
improving corn's nutritional quality. ARS, Tifton, Georgia, is 
cooperating with the University at Irapuato to quantify aflatoxin in 
feed corn (ongoing);
Time frame: Activity/Program type: 2003-2008;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: Management of Bacillus 
thuringiensis (Bt) Resistance to Bt along the U.S.-Mexico border is 
extremely important since both spray applications and transgenic crops 
are in heavy use. ARS, Weslaco, Texas, and Manhattan, Kansas, are 
working with the Universidad Autnoma de Nuevo Leon, in Monterrey, 
Mexico, to study, at a molecular level, mechanisms of Bt resistance in 
Lepidoptera (butterflies and moths) (ongoing);
Time frame: Activity/Program type: 2001-2006;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: Wheat and barley 
disease research: The USA Wheat and Barley Scab Initiative, managed by 
ARS, supports collaborative germplasm research with the CIMMYT Bread 
Wheat Program. CIMMYT scientists evaluate wheat and barley lines for 
natural resistance to scab, providing CIMMYT/Mexican scientists access 
to cutting-edge U.S. biotechnology research. ARS, Aberdeen, Idaho, and 
ARS, Manhattan, Kansas, support an agreement with CIMMYT to evaluate 
Karnal bunt (a fungal disease) resistance in wheat accessions. ARS and 
land-grant university wheat researchers visited CIMMYT and other 
Mexican research locations in April 2002 to develop further U.S.-
Mexican collaboration on cereal disease research and extension 
(ongoing);
Time frame: Activity/Program type: 2000-2008;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: Sorghum disease 
research: ARS, College Station, Texas, has an agreement with FUMIAF 
(INIFAP), Mexico, to control sorghum ergot (a disease that affects 
cereals) in northern Mexico and the United States. Research monitors 
the spread of sorghum ergot and screens sorghum accessions for ergot 
resistance at Rio Bravo, Tampico, Celaya, and Ocotlan, Mexico. This 
includes collaboration on assessing sorghum germplasm diversity using 
DNA markers with the ARS sorghum germplasm curator in Mayaguez, Puerto 
Rico (ongoing);
Time frame: Activity/Program type: 2003-2008;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: The winter cotton 
nursery: In conjunction with maintaining a cotton germplasm collection 
of 7,000 cultivated and noncultivated cottons and closely related 
species at College Station, Texas, ARS manages a winter nursery at 
Tecoman, Colima, Mexico, in cooperation with INIFAP under a memorandum 
of understanding. The nursery increases seed availability, especially 
from non cultivated plants that flower only in the short days of 
winter, when U.S. weather is too cold for cotton. Mexican scientists 
also have access to the materials for research if the cotton lines are 
not restricted by intellectual property protection (ongoing);
Time frame: Activity/Program type: 2000-2005;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program type: Monarch butterfly: ARS 
led a consortium of midwestern research institutions in a coordinated 
evaluation of the effect of Bt maize on monarch butterfly larvae in the 
field. The studies documented that Bt corn pollen is only a very small 
risk factor to the butterfly in real-world conditions. This finding is 
important to Mexico, the destination for butterfly migration in winter. 
The butterfly is considered a national treasure;
Time frame: Activity/Program type: 2003-2005;
Budget from 1994-2004: Activity/Program type: [Empty].

Activity/Program type: Biotechnology;
Description of activity: Activity/Program typeWater research 
collaboration: Preventing production of transgenic corn pollen: ARS 
research has developed technology to place transgenes very precisely in 
the genome so that their expression can be more predictable. In a 
research program that is in its initial phase, this technology will be 
combined with other ARS-developed innovations to prevent the production 
of transgenic corn pollen. If successful, this research would allow 
transgenic and indigenous corn to be grown side by side without any 
movement of transgenes;
Time frame: Activity/Program typeWater research collaboration: 2002-
2006;
Budget from 1994-2004: Activity/Program typeWater research 
collaboration: [Empty].

Activity/Program type: Water research collaboration;
Description of activity: Aquatic weeds: Since 2000, ARS scientists have 
collaborated with Mexican researchers in an effort to curb the spread 
of water hyacinth (Eichhornia crassipes) in Mexico's dikes, reservoirs, 
and canals. Cooperators have introduced weevils and moths as biological 
control agents that have proven to be successful in reducing water 
hyacinth densities in the United States;
Time frame: 2002-2007;
Budget from 1994-2004: Unfunded cooperation/in-kind resources only.

Activity/Program type: Water research collaboration;
Description of activity: Assessment tools: ARS scientists at the 
Grassland Soil and Water Research Laboratory in Temple, Texas, in 
cooperation with scientists from Texas A&M, are working in Mexico to 
train INIFAP scientists on the use of ARS water resource and erosion 
models. The U.S. and Mexico team is currently using the ARS Soil and 
Water Assessment Tool (SWAT) to estimate impacts of different 
irrigation practices on water supplies affecting the Rio Grande River;

Activity/Program type: Conservation tillage cooperative research 
projects;
Description of activity: Corn residues: Mexican scientists are 
conducting a study at many locations scattered about central Mexico to 
determine the effect of tillage and fertility practices and corn 
residue removal on crop yield and erosion control. The study sites 
included a wide range of soil and climatic conditions in order to 
determine soil carbon sequestration. Results are preliminary;
however, there appears to be a fairly strong relationship between the 
fraction of residue removed and increased soil carbon with no-till 
farming methods at mean annual temperatures below 20 C;
Time frame: 2001-2006;
Budget from 1994-2004: Unfunded cooperation/in-kind resources only.

Activity/Program type: Conservation tillage cooperative research 
projects;
Description of activity: Activity/Program type: Natural resources 
management: No-till: A study with the INIFAP group at Celaya. Long-term 
records indicate that organic carbon in certain soils of the state of 
Guanajuato, Mexico, has been reduced by agricultural practices from 
around 3 percent to 1.8 percent. A study has been conducted to develop 
data that supports the use of no-till farming for wheat-corn cropping 
systems, evaluate no-till for wheat and bean cropping systems, and 
assess the potential for rebuilding soil organic carbon in these soils;
Time frame: Activity/Program typeNatural resources management: [Empty];
Budget from 1994-2004: Activity/Program typeNatural resources 
management: [Empty].

Activity/Program type: Natural resources management;
Description of activity: Grazing management: At Tucson, Arizona, the 
research focus is on developing planning and evaluation methodologies 
for grazing management in northern Mexico and the southwestern United 
States. In 2003, ARS hired two graduate students to prepare data and 
adapt a hydrologic simulation model for application to rangelands in 
Mexico;
Time frame: 2001-2005;
Budget from 1994-2004: $25,000.

Activity/Program type: Natural resources management;
Description of activity: Rangeland management: At Las Cruces, New 
Mexico, ARS scientists have been developing a rangeland monitoring 
manual in both Spanish and English. With INIFAP they cohosted workshops 
on monitoring technologies in both Mexico and the United States. 
Research collaborations continue in the development of indicators for 
rangeland monitoring that will be incorporated into the manual and 
future workshops to train and inform for ranchers and land management 
personnel;
Time frame: 2002-2007;

Activity/Program type: Animal health;
Description of activity: Screwworm eradication: In 2000, an ARS 
scientist was colocated with APHIS and a large Mexican government staff 
at the screwworm rearing facility in Tuxtla Gutierrez, Mexico, to 
provide technical assistance and research support for eradication 
program in Central America. At the request of the U.S.-Mexico Screwworm 
Commission, ARS is assisting Mexican officials in developing viable 
options for alternative use of the sterile screwworm plant at Tuxtla 
Gutierrez, Chiapas. After a new facility is constructed in Panama, the 
Chiapas plant is scheduled to close;
Time frame: 2002-2004;
Budget from 1994-2004: $50,000.

Activity/Program type: Animal health;
Description of activity: Cattle ticks: Since 2001, Scientists from ARS, 
Kerrville, Texas, and INIFAP, Cuernavaca, Morelos, are studying the 
southern cattle tick and horn fly to determine the nature and scope of 
pyrethroid and organophosphate pesticide resistance and develop 
practical guidelines to manage this resistance to protect livestock. A 
major goal is determining the mechanisms involved in resistance and 
develop an analysis to monitor resistance;
Time frame: 2001-2004;

Activity/Program type: Animal health;
Description of activity: Africanized honeybees: ARS scientists at 
Weslaco, Texas, are working closely with their Mexican counterparts to 
assess the impact of Africanized honeybees on the pollination of 
vegetables and fruits. They will also investigate the impact on 
honeybees of hard and soft chemicals used in crop pest control;
Time frame: 2003-2008;

Activity/Program type: Animal health;
Description of activity: Vesicular stomatitis virus occurrence in areas 
of Mexico where it is endemic: Since 2002, ARS scientists from Laramie, 
Wyoming, have been working with their Exotic Animal Disease Commission 
counterparts to generate basic epidemiological information about 
Vesicular stomatitis virus (VSV) occurrence in endemic areas in 
southern Mexico and establish the necessary conditions for field 
validation of VSV rapid diagnostic tests in well-documented infected 
and noninfected cattle herds;
Time frame: 2002-2005;

Activity/Program type: Plant health;
Description of activity: Planning meetings: In November 2000, ARS-
Southern Plains Area (SPA) scientists met with INIFAP scientists to 
discuss research areas for future collaboration. There were 
approximately 40 scientists at the meeting, and research areas for 
potential collaboration included water management, plant and animal 
health, range management, and biotechnology. As a follow-up to the 
November meeting, ARS-SPA and INIFAP entomologists met in January 2002 
to discuss potential research collaboration. There were approximately 
20 scientists at the meeting, and potential collaborative research 
efforts included boll weevil, brown citrus aphid, and fruit flies. In 
February 2002, ARS and INIFAP scientists met to discuss the brown 
citrus aphid;
Time frame: 2000;
Budget from 1994-2004: $185,000.

Activity/Program type: Plant health;
Description of activity: Late blight: Breeding for durable resistance 
to late blight. Late blight (Phytopthora infestans) is the most 
important potato disease worldwide, costing the United States about 
$200 million annually for control. ARS scientists are working with 
Mexican counterparts in the Toluca Valley, where late blight originated 
and all known strains occur, providing heavy disease pressure all 
season every year;
Time frame: 2003-2006;

Activity/Program type: Plant health;
Description of activity: Activity/Program typeFood safety: Expanding 
the pollinator base for Southern California avocados: ARS-Northern 
Plains Area scientists were working with a scientist from la 
Universidad de las Americas in collecting insects to link pollinators 
to pollination success. Pollination efficiency studies were conducted 
through the use of bagged and unbagged flowers;
Time frame: Activity/Program typeFood safety: 2003-2004;

Activity/Program type: Food safety;
Description of activity: Extend the shelf life of regional cheese: ARS 
scientists at the Eastern Regional Research Center, Wyndmoor, 
Pennsylvania, in collaboration with Mexican researchers from CIAD 
(Centro de Investigacion en Alimentacion y Desarrollo), Cuauhtemoc, 
Chihuahua, Mexico, have characterized the chemical, textural, sensory, 
and microbiological properties of fresh Chihuahua cheeses and other 
cheeses from the region. The purpose of the project is to extend the 
shelf life of regional cheeses;
Time frame: 2002-2004;
Budget from 1994-2004: $15,000.

Activity/Program type: Food safety;
Description of activity: Activity/Program type: Pathogen control in 
poultry: The development of nonantibiotic alternatives for food-borne 
pathogen control in poultry. ARS in Fayetteville, Arkansas, and the 
Autonomous University of Mexico started a formal cooperation after 
September 2001 to evaluate the microflora populations in the 
gastrointestinal tract of poultry, including the niche environments of 
food-borne pathogens;
Time frame: Activity/Program type: 2001-2006;
Budget from 1994-2004: Activity/Program type: Unfunded cooperation/in-
kind resources only.

Activity/Program type: Food safety;
Description of activity: Activity/Program type: Planning meeting: On 
October 1, 2002, INIFAP and ARS cohosted a meeting with the main 
Mexican agricultural research and academic institutions and Consejo 
Nacional de Ciencia y Tecnologia (CONACyT), Mexico's National Council 
of Science and Technology. Representatives agreed to refocus efforts in 
agricultural research, education, and exchanges to address specific 
agricultural problems of mutual concern through joint research and 
cooperation in capacity-building;
Time frame: Activity/Program type: 2002;
Budget from 1994-2004: Activity/Program type: Unfunded cooperation/in-
kind resources only for the planning meeting and the collaborative 
research workshops. In the case of Bt resistance monitoring, the budget 
dedicated was $8,000.

Description of activity: Activity/Program type: Collaborative research 
workshops: In 2003, five workshops were organized by the ARS and its 
Mexican counterpart, the National Institute for Forestry and 
Agricultural Research (INIFAP). The scientists who participated at the 
workshops developed 106 potential collaborative research projects of 
mutual interest and benefit for both countries. Mexican scientists and 
their ARS counterparts then developed 22 research proposals to be 
presented to the Mexican National Council for Science and Technology 
(CONACyT) for funding at its sectorial fund CONACyT-SAGARPA opening on 
September 2003. From these proposals, eight were approved for funding 
starting in 2004;
Time frame: Activity/Program type: 2003;

Description of activity: Activity/Program type: Bt resistance 
monitoring: ARS and INIFAP sponsored a workshop in April 2004 to adopt 
common protocols for and to coordinate U.S.-Mexican Bt resistance 
monitoring. INIFAP and ARS have been cooperating in resistance 
monitoring on a small scale in Mexico. ARS and INIFAP agreed that 
enhanced scientific cooperation in this area would be of mutual benefit 
to Mexican and U.S. cotton growers and regulatory agencies and arranged 
a workshop to start expanding collaborative research in this subject;
Time frame: Activity/Program typeTotal: 2004-2005;
Budget from 1994-2004: Activity/Program typeTotal: [Empty].

Activity/Program type: Total;
Time frame: [Empty];
Budget from 1994-2004: $2,284,412.

Source: GAO, based on ARS data;

[End of table]

Foreign Agricultural Service (FAS), International Cooperation and 
Development:

Over the past 10 years, FAS/ICD has spent a total of $1.8 million on 
its Scientific Cooperation Research Program (SCRP) and Cochran 
Fellowship Program (CFP). Under SCRP, U.S. and Mexican scientists have 
conducted joint research and scientific exchanges for over 20 years to 
help solve mutual food, agricultural, and environmental problems. Since 
NAFTA was enacted, SCRP has sponsored 32 joint agricultural research 
projects among U.S. and Mexican universities and other research 
institutions, of which about half have been related to trade. In 
addition, FAS administers CFP, which provides U.S.-based agricultural 
training opportunities for senior and midlevel specialists and 
administrators from the Mexican public and private sectors who are 
concerned with agricultural trade, agribusiness development, 
management, policy, and marketing. For a full list and descriptions of 
FAS/ICD activities, see table 6.

Table 6: USDA Foreign Agricultural Service, International Cooperation 
and Development (ICD), Collaborative Activities with Mexico, 1994-2004:

Activity/Program type: Emerging Markets Program;
Description of activity: Mexican congressional delegation on 
biotechnology: Thirteen members of the Mexican Congress traveled to 
Washington, D.C., to obtain information and make decisions on labeling 
of biotechnology foods. Mexico is a $3.1 billion market for U.S. 
processed foods. Several of the congressional members commented to the 
Agriculture Attach that what they learned in the United States on 
biotechnology from Food and Drug Administration (FDA) and the American 
Medical Association had convinced them that there was no need for 
labeling of biotechnology foods;
Time frame: 2001;
Budget: $463,500.

Activity/Program type: Emerging Markets Program;
Description of activity: Mexico Food Safety Workshop: The Trade and 
Investment Program, the USDA Biotechnology Group, and FAS/Mexico City 
coordinated a Mexico Food Safety Workshop, which was held in Mexico 
City from June 16-18, 2004. The workshop involved approximately 20 
participants from the Mexican Ministries of Health, Agriculture, 
Economics, and Education, as well as the Mexican Center for Research on 
Food and Development. Seven participants from FDA, Environmental 
Protection Agency, and USDA, as well as two representatives from the 
Novel Foods Division of Health Canada also attended. The purpose of the 
workshop and related meetings was to address issues related to 
regulatory requirements and safety assessments related to biotechnology 
in North America;
Time frame: 2004;

Activity/Program type: Emerging Markets Program;
Description of activity: Agricultural biotechnology workshop for Latin 
American farmers: In August 2004, FAS/ICD sponsored a workshop for 
farmers and farm leaders at Zamorano University in Honduras on 
agricultural biotechnology. The workshop provided farmers from 17 Latin 
American countries (including Mexico) with information to increase 
farmers' awareness of challenges and benefits of agricultural 
biotechnology. The workshop was organized in collaboration with 
Zamorano University, Cornell University, and REDBIOA, a network of 
strategies and policies for assistance to national biotechnological 
research programs in Latin America and the Caribbean;
Time frame: 2004;
Budget: [Empty].

Activity/Program type: Emerging Markets Program;
Description of activity: Mexico agricultural trade missions: Under the 
U.S.-Mexico Partnership for Prosperity, FAS/ICD, Mexico's Ministry of 
Agriculture and the Food Marketing Institute conducted trade missions 
to Mexico in March 2003 and March 2004. The purpose was to identify 
trade and investment opportunities between Mexican horticultural 
producers and U.S. supermarkets. Thirty-one U.S. representatives from 
16 companies established long-term business contacts and/or initiated 
produce-sourcing arrangements. Participants visited 10 farms in 
Jalisco, Sinaloa, Sonora, and Guanajuato that produce tomatoes, bell 
peppers, cucumbers, eggplant, and onions. U.S. companies that 
participated in the 2003 mission expected to purchase approximately 
$104 million worth of produce from Mexican growers as a result of the 
activity;
Time frame: 2003-2004;
Budget: [Empty].

Activity/Program type: Emerging Markets Program;
Description of activity: Trade show seminars: FAS/ICD/Food Industries 
Division/Trade and Investment Program conducted seminars on food 
safety, U.S. wines and cheeses, seafood handling, and produce 
marketing, and promoted the Export Credits Facilities Credit Guarantee 
program and Supplier Credit Guarantee program in tandem with the annual 
ANTAD (2001), ABASTUR (2001), and EXPHOTEL (2000, 2002, 2003, and 2004) 
trade shows. These programs were coordinated with the Agricultural 
Trade Office in Mexico City;
Time frame: 2001-2004;
Budget: [Empty].

Activity/Program type: Emerging Markets Program/Cochran Fellowship 
Program;
Description of activity: Biotechnology short course: The Trade and 
Investment Program and the Cochran Fellowship Program worked in 
partnership with Michigan State University to design and implement six 
short courses on agricultural biotechnology. Twenty-five participants 
from 13 countries in Latin America and the Caribbean (including six 
participants from Mexico) were selected from local and national level 
government bodies, private industry, nongovernmental organizations, and 
universities. This course prepared participants to play an informed, 
guiding role in the public debate and discussions on biotechnology in 
their home countries. Participants engaged in sessions on the science 
of biotechnology, but the primary focus of the course was on 
biotechnology's relationship to market access and the trade of 
agricultural products. The 2-week course covered such topics as 
research and development, biotech regulations, international 
organizations, global economy, marketing and consumers, food security, 
and technical assistance. The course included activities in Washington, 
D.C., at Michigan State University, and at Texas A&M University;
Time frame: 2004;
Budget: [Empty].

Activity/Program type: Emerging Markets Program;
Description of activity: Cold chain field assessment: USDA conducted a 
cold chain field assessment of cold-storage facilities in Laredo, Texas;
Mexican trucking companies and supermarkets;
and central markets in Monterrey and Mexico City. Over 100 perishable 
food producers, importers, distributors, and transportation and 
refrigeration providers attended a seminar on "Maintaining the Cold-
Chain from Port to Consumer."
Time frame: 2000;
Budget: [Empty].

Activity/Program type: Emerging Markets Program;
Description of activity: Cold chain technical assistance: USDA provided 
two weeks of technical assistance on produce marketing, cold storage 
logistics, and the Hazard Analysis and Critical Control Point to 
Mexican companies, including a wholesaler from Mexico City's Central 
Market, a fruit grower/importer/distributor, a meat importer/processor, 
and a refrigeration company. In September 2003 those companies were 
visited again to monitor the success of earlier assistance and to give 
additional advice. One Mexican company and a major U.S. cold-storage 
company were constructing a new meat processing and distribution 
facility. Another company was able to double and triple fresh fruit 
imports from Washington state and northern California, respectively, by 
air conditioning an adjacent storage space. It also reduced shrinkage 
through better temperature monitoring and improved trucking services;
Time frame: 2002;
Budget: [Empty].

Activity/Program type: Emerging Markets Program;
Description of activity: Cold chain: In the fall of 2004 two 
participants attended a program providing understanding of proper 
management of refrigerated and frozen foods. The program began with 
training covering topics such as: an overview of the entire cold-chain 
process, from producer to consumer; quality maintenance from producer 
to wholesaler to retailer; characteristics of cold-storage rooms;
transportation and distribution systems for refrigerated and perishable 
products; receiving and managing perishable products at the port and in 
the store; packaging and merchandising perishable products; waste 
management; and methods for extending shelf life;
Time frame: 2004;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Five-a-Day promotion program: The training 
provided officials from the newly formed "Fundacion Campo y Salud" with 
important information regarding Five-a-Day program development, 
establishment, and operation. The training took place in Washington, 
D.C., and Wilmington, Delaware, and included meetings with officials 
from USDA, the National Cancer Institute, and the Produce for Better 
Health Foundation. In April and May 2003, four participants attended 
training;
Time frame: 2003;
Budget: $183,225.

Activity/Program type: Cochran Fellowship Program;
Description of activity: Meat and poultry inspection: FSIS conducted 
seminars from 1999-2004 providing in-depth knowledge regarding U.S. 
inspection procedures and regulations used to ensure that meat, 
poultry, and egg products are safe, wholesome, and properly labeled. 
Emphasis was placed on Hazard Analysis and Critical Control Point and 
pathogen reduction initiatives. A few seminars were given in Spanish, 
and in some participants took field trips during the training to farms, 
slaughterhouses, processors, and port facilities. A total of 29 people 
participated from 1999 to 2004;
Time frame: 1999-2004;

Activity/Program type: Cochran Fellowship Program;
Description of activity: Veterinary epidemiology: In 2001, a 
participant attended a seminar focusing on training veterinary 
epidemiologists regarding U.S. standards and techniques to identify, 
control, and eradicate animal diseases such as foot and mouth, 
screwworm, swine fever, etc. The purpose of the training was to provide 
other governments pursuing these diseases a means by which to be 
proactive in excluding diseases from the United States;
Time frame: 2001;

Activity/Program type: Cochran Fellowship Program;
Description of activity: Veterinary biologics: In 2003, one participant 
attended a seminar providing the participants with in-depth training 
regarding the scientific principle of vaccines and vaccination and of 
the USDA regulatory process for assuring the purity, safety, potency, 
and efficacy of veterinary biologics. Topics included Immunology and 
Principles of Vaccination, Procedures for Ensuring Vaccine Safety and 
Efficacy, Potency and Safety Testing, and Diagnostic Test Kit 
Evaluation;
Time frame: 2003;

Activity/Program type: Cochran Fellowship Program;
Description of activity: Veterinary medicine: A total of eight 
participants from Mexico attended the Southwestern Veterinary 
Symposium, which included presentations on food animal disease 
diagnosis and treatment, public health, and epidemiology and addressed 
U.S. import requirements, identification and quarantine of diseased 
livestock, and disease control and eradication issues in Mexico;
Time frame: 2001;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Foreign animal disease: In 2002, one 
participant from Mexico attended a course providing an overview of 
Foreign Animal Diseases, including epidemiological animal surveillance, 
diagnosis of foreign animal diseases, and controlling methods;
Time frame: 2002;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Risk management: In 2001, one participant from 
Mexico attended a seminar to increasing knowledge of risk management in 
terms of agricultural insurance for crops, livestock and farms, 
machinery, and farm buildings. Topics included banks and financial 
markets; assessing risk; determining premiums; new technology to 
evaluate risk, inspect damage, and adjust loss; sources of financial 
data; index-based insurance; catastrophic bonds; needs of 
agribusinesses; and new tendencies in risk management theories;
Time frame: 2001;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Animal health policy: In 2000, one participant 
from Mexico attended training providing in-depth understanding of how 
animal health policy evolves and is implemented at state, national, and 
international levels. Topics included animal health policy evaluation, 
leadership methods, food safety, how to influence policy makers, 
strategic planning, inter governmental relations and regionalization, 
the role of special interest groups and the media, and legislative 
perspectives;
Time frame: 2000;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Grain handling: In 2000, one participant from 
Mexico attended training providing in-depth knowledge regarding US 
grain quality and handling procedures. Topics included grain storage 
procedures, drying and handling equipment, grain grading and inspection 
procedures, handling/loading for transportation, land vs. ocean 
transportation, preservatives and their applications, factors affecting 
grain quality in handling, and export programs;
Time frame: 2000;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Food safety/hazard analysis and critical 
control point (HACCP): In 1999, nine participants from Mexico attended 
a course designed to prepare officials to review a plant's HACCP plan, 
determine if the plan was properly implemented and maintained, and 
react to minor or major discrepancies in an appropriate and effective 
manner. Topics included an overview of FSIS food safety goals and 
strategies, HACCP overview and principles, steps in the development of 
the HACCP system and relationship of Hazard Analysis and Critical 
Control Point/Good Manufacturing Practices/Sanitation Standard 
Operating Procedures, microbiological testing, E. coli and salmonella, 
the revised Performance-Based Inspection System, basic 
compliance/noncompliance of plans, and consumer protection;
Time frame: 1999;
Budget: [Empty].

Activity/Program type: Cochran Fellowship Program;
Description of activity: Rural finance: In 2004, six participants from 
Mexico attended a program that trained them in the areas of credit 
administration, credit compliance, risk management, and greenhouse 
project assessment;
Time frame: 2004;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Florida in 
collaboration with Alimentos Del Fuerte, Los Mochis, Sinaloa, worked on 
a project titled "Characterization of strains of Xanthomonas campestris 
pv. Vesicatoria in Mexico and the impact of resistant genotypes and 
bactericides."
Time frame: 1991-1994;
Budget: $1.2 million.

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/Forest Service worked 
in cooperation with Centro de Genetica Forestal, A.C. on a project 
titled "Cooperative program for the conservation of biodiversity."
Time frame: 1992-1995;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Idaho 
collaborated with Centro Internacional de Mejoramiento de Maiz y Trigo 
(CIMMYT) on a project titled "Identification of novel or under utilized 
sources of nuclear and cytoplasmic germplasm in wheat."
Time frame: 1993-1995;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Gainesville, 
Florida, worked with Instituto de Ecologia, Xalapa, Veracruz on a 
project titled "Host-finding by parasitoids of species of anastrepha 
and the importation of Caribbean fruit fly natural enemies."
Time frame: 1993-1996;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Tucson, Arizona, 
worked with Instituto Nacional de Investigaciones Forestales, Agrcolas 
y Pecuarias (INIFAP) on a project titled "Comparative research on 
integrated watershed management at Walnut Gulch, Arizona and Rio 
Matape, Sonora, Mexico."
Time frame: 1993-1996;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: Colorado State University 
collaborated with the University of Baja California School of 
Veterinary Medicine on a project titled "Bovine tuberculosis in Baja 
California, Mexico: A prototype program for surveillance and control."
Time frame: 1993-1996;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Maryland, 
collaborated with Centro Internacional de Mejoramiento de Maiz y Trigo 
(CIMMYT) on a project titled "Correlation between PCR-based seed assay 
and development of Karnal bunt in the field."
Time frame: 1995-1998;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Missouri 
collaborated with Instituto Nacional de Investigaciones Forestales, 
Agrcolas y Pecuarias (INIFAP) on a project titled "Epidemiology of 
bovine hemoparasitic diseases in selected areas of Central America and 
Mexico."
Time frame: 1995-1998;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Wisconsin 
collaborated with Guadalajara University on a project titled "Pulp and 
paper from agricultural materials via environmentally benign processes."
Time frame: 1995-1998;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of California 
collaborated with the University of Baja California on a project titled 
"Brucellosis in goats in the Mexicali Valley: Risk factors for herd 
infection and health risks of REV-1 vaccination."
Time frame: 1996-1999;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Arizona 
collaborated with Universidad de Sonora on a project titled 
"Categorization of isolates of the root rot fungus, phymatotrichum and 
its fungal antagonists for the development of biological control 
strategies in the U.S."
Time frame: 1997-2000;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of 
Massachusetts collaborated with the University of Nuevo Leon on a 
project titled "Presence and enterotoxigenicity of Clostridium 
perfringens in U.S. and Mexican foods."
Time frame: 1997-2000;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Texas, 
collaborated with the Center for Genetics and Advanced Studies on a 
project titled "Improvement of fruit storage-life and quality in 
muskmelon by genetic transformation."
Time frame: 1998-2001;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Arizona, 
cooperated with the Instituto Nacional de Investigaciones Forestales, 
Agrcolas y Pecuarias (INIFAP) on a project titled "Extension of the 
rangeland health concept and associated classification schemes into 
Mexico."
Time frame: 1998-2001;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Missouri 
collaborated with the Instituto Nacional de Investigaciones Forestales, 
Agrcolas y Pecuarias (INIFAP) on a project titled "Vaccine control of 
bovine babesioisis/prevention in U.S. and Mexico."
Time frame: 1998-2001;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Hawaii, and the 
USDA/APHIS collaborated with the Colegio de la Frontera Sur on a 
project titled "Strain development and field evaluation of biosteres 
arisanus for control of fruit flies in Hawaii, Mexico, and Guatemala."
Time frame: 1998-2001;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: New Mexico State University 
collaborated with the Universidad Autonoma de Chiapas on a project 
titled "The density and diversity of parasitic hymenoptera as bio-
indicators of habitat disturbance in a cotton producing region of 
tropical Mexico."
Time frame: 1999-2002;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: North Dakota State 
University collaborated with the Institucion de Ensenanza e 
Investigacion En Ciencias Agricolas on a project titled "Comparison of 
the calcium, iron, zinc, and magnesium, contents of bean seed of 
Mexican and American origin."
Time frame: 1999-2001;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: Northern Arizona University 
collaborated with Instituto Nacional de Investigaciones Forestales, 
Agrcolas y Pecuarias (INIFAP) on a project titled "Managing fragmented 
Douglas-fir ecosystems in Southwestern North America for long term 
sustainability."
Time frame: 1999-2002;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of California 
collaborated with the Universidad Autonoma del Estado de Mexico on a 
project titled "Population genetic characterization of naturally 
sympatric and allopatric populations of teosinite with maize in Mexico: 
Implications."
Time frame: 1999-2002;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Florida 
functionally collaborated with Monterrey Institute of Technology on a 
project titled "Properties of improved natural pigments (antimicrobial 
compounds)."
Time frame: 2001-2004;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Pennsylvania, 
collaborated with Centro de Investigacion en Alimentaction y 
Dessarollo, Chihuahua, on a project titled "Modification of cheese-
making parameters to extend the shelf-life of Hispanic-style fresh 
cheeses."
Time frame: 2001-2004;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: Yale School of Forestry/
Environmental Sciences collaborated with Centro de Investigaciones 
Avanzados Unidad Merida on a project titled "Implications for agrarian 
change and the status of crop genetic resources in Yucatan, Mexico."
Time frame: 2001-2004;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/APHIS, Hawaii, 
collaborated with ECOSUR (a research institute devoted to ecological 
studies in southern Mexico) on a project titled "Controlling the 
Mediterranean fruit fly: Improving the sterile insect technique via 
nutritional and olfactory manipulation."
Time frame: 2001-2004;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Arkansas 
"Solutions to food safety and security problems for Mexico and the 
United States (U.S.) Development of non-antibiotic and alternative 
controls."
Time frame: 2002-2005;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of California 
Riverside collaborated with la Universidad Autonoma Chapingo on a 
project titled "Conservation and restoration of wild avocado (Persea 
spp.) in Mexico."
Time frame: 2002-2005;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The USDA/ARS, Maryland, 
cooperated with the International Cooperative Potato Late Blight 
Program on a project titled "Cooperative testing of late blight 
resistance."
Time frame: 2003-2006;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: USDA/ARS, Washington, 
collaborated with Instituto Nacional de Investigaciones Forestales, 
Agrcolas y Pecuarias (INIFAP) on a project titled "Enhancing 
resistance in Mexican pinto bean cultivars to common bacterial blight."
Time frame: 2003-2006;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of Wisconsin 
initiated a project with Instituto Tecnolgico de Veracruz titled 
"Identifying potential cancer chemopreventive agents in maize."
Time frame: 2004-2007;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: Cornell University, in 
collaboration with the Monterrey Institute of Technology (ITESM), 
initiated a project titled "Effects of tortilla processing on the fate 
and bioavailability of phytochemicals in high carotenoid and pigmented 
corns."
Time frame: 2004-2007;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The University of New 
Mexico, in collaboration with El Centro de Desarrollo Humano hacia la 
Comunidad, Cuernavaca, Morelos initiated a project titled "Nutritional 
& medicinal agricultural product sharing between underserved 
communities in Mexico and the United States."
Time frame: 2004-2007;
Budget: [Empty].

Activity/Program type: Scientific Cooperation Research Program;
Description of activity: Research project: The Southwestern Indian 
Polytechnic Institute, in collaboration with the State Government of 
Chihuahua, initiated a project titled "Application of hydroponic forage 
production in arid lands."
Time frame: 2004-2007;
Budget: [Empty].

Activity/Program type: Total;
Description of activity: [Empty];
Time frame: [Empty];
Budget: $1,836,855. 

Source: GAO, based on FAS/ICD data.

[End of table]

Agricultural Marketing Service AMS:

AMS has spent about $548,200 since 1994 in collaborative activities 
with Mexico. Most of AMS activities consist of providing training to 
Mexican fresh fruit and vegetable inspectors to help them meet U.S. 
inspection standards. For a full list and descriptions of AMS 
agricultural collaborative activities, see table 7.

Table 7: USDA Agricultural Marketing Service (AMS), Collaborative 
Activities with Mexico, 1994-2004:

Activity/Program type: Emerging Markets Program;
Description of activity: Inspection training/destination market 
inspection: With support from the Emerging Market Program, AMS is 
providing training in the United States to Mexican fresh fruit and 
vegetable inspectors. Objectives of this project include helping 
SAGARPA develop a professional inspection service and establish a 
codified fruit and vegetable grading and standards system, bringing 
Mexico's marketing system for fruits and vegetables closer to that of 
the United States and Canada;
Time frame: 1999 and 2002
Budget: $491,200.

Activity/Program type: Emerging Markets Program;
Description of activity: Dispute resolution corporation: The objective 
is to efficiently resolve disputes between exporters and importers, 
assisting Mexico's agricultural commodity markets to operate similar to 
those in Canada and the United States and increase U.S. exports to 
Mexico;
Time frame: 2004;

Activity/Program type: Fruit and vegetable standards;
Description of activity: Market information organization of the 
Americas: The objective was to enhance the dissemination of market 
information in domestic to producers, importers, and shippers;
Time frame: 1999 (ongoing)
Budget: $27,000.

Activity/Program type: Fruit and vegetable standards;
Description of activity: Research and promotion: The objective was to 
facilitate Mexico understudying of AMS research and promotion activities
Time frame: 2002 and 2004;
Budget: [Empty].

Activity/Program type: Research publications;
Description of activity: Research projects: The objective was to 
provide information to U.S. exporters on the transportation and 
logistical infrastructure, facilities, and services used to support 
U.S. exports to Mexico. Publications include (1) Mexico's Agricultural 
Trade Infrastructure for Apples and Pears, by Juan Batista and John W. 
Hagen, Center for Agricultural Business, California State University, 
Fresno, 1994, CATI Publication #940201; (2) "Logistics and Perishables 
Trade Between the United States and Mexico," Richard Beilock, Roger 
Clemens, James Dunn, and Barry Prentice, University of Florida, 
Gainesville, May 1995, Economics Report ER 95-1; 12-25-A-3381; and (3) 
"Shipping U.S. Grain to Mexico," by Keith A. Klindworth and Arne J. 
Martinsen, Marketing and Transportation Analysis, Transportation and 
Marketing, September 1995, USDA AMS Marketing Research Report Number 
630;
Time frame: 1994-1995;
Budget: $30,000.

Activity/Program type: Total;
Description of activity: [Empty];
Time frame: [Empty];
Budget: $548,200.

Source: GAO, based on AMS data;

[End of table]

National Agricultural Statistics Service (NASS):

NASS has been involved in a few collaborative activities in Mexico 
since 1997. Using the Emerging Markets Program, NASS has spent $361,000 
to help improve the agricultural statistics system and methodology in 
Mexico. As part of this assistance, NASS provided training to analysts 
from Mexico's agricultural statistics service, Servicio de Informacin 
y Estadstica Agroalimentaria y Pesquera (SIAP). This training focused 
on methodology for preparing official agricultural statistics. For a 
full list and descriptions of NASS activities, see table 8.

Table 8: USDA National Agricultural Statistics Service (NASS), 
Collaborative Activities with Mexico, 1994-2004:

Activity/Program type: Emerging Markets Project;
Description of activity: Training for SIAP (Mexico's Agricultural 
Statistics Service): NASS conducted training and implementation of 
objective yield measurement surveys for crops important to U.S.-Mexico 
trade (corn, soybeans, sorghum, and avocados). These surveys provide an 
accurate indication of the yield and available production of these 
crops;
Time frame: 1997-2002;
Budget: $67,000.

Activity/Program type: Emerging Markets Project;
Description of activity: Training for SIAP: Mexican analysts from SIAP 
attended seminars and training on the methodology used in NASS to 
prepare official agricultural statistics and the responsibilities 
shared between the federal-and state-level organizations. These 
activities have included both visits from NASS personnel to Mexico and 
Mexican analysts' visits to NASS headquarters and field office 
locations;
Time frame: 2003-2004;
Budget: $294,000.

Activity/Program type: Emerging Markets Project;
Description of activity: Training for SIAP: Mexican analysts from SIAP 
attended seminars and training on the use of NASS's area frame, 
multiple frame, and remote sensing techniques in the preparation of 
agricultural statistics. These seminars have included training in 
sophisticated sampling techniques to improve the efficiency of the 
agricultural surveys conducted. SIAP analysts are currently producing 
their first general-purpose area frame for use in several statistical 
surveys;
Time frame: [Empty];
Budget: [Empty].

Activity/Program type: Total;
Description of activity: [Empty];
Time frame: [Empty];
Budget: $361,000.

Source: GAO, based on NASS data.

[End of table]

Food Safety and Inspection Service (FSIS):

Since 2001, FSIS has implemented a small number of activities valued at 
$298,412 under the Emerging Markets Program in Mexico. Most of these 
activities consist of providing training and technical assistance to 
Mexican meat and poultry exporters to help them meet U.S. import 
regulations. For a full list and descriptions of FSIS activities, see 
table 9.

Table 9: USDA Food Safety and Inspection Service (FSIS), Collaborative 
Activities with Mexico, 1994-2004:

Activity/Program type: Emerging Markets Program;
Description of activity: Pathogen reduction: Using Emerging Markets 
Program funding, FSIS has provided pathogen reduction training to 
Mexican meat and poultry inspection officials in order to assist 
SAGARPA in implementing the standards necessary for Mexican plants to 
export meat and poultry products to the United States. This consisted 
of activities for improving knowledge of HACCP principles and for 
improving knowledge of FSIS microbiology testing methods;
Time frame: 2001;
Budget: $98,458.

Activity/Program type: Emerging Markets Program;
Description of activity: Technical assistance activity: This activity 
consisted of providing technical assistance to assure the continuation 
of safe and wholesome meat and poultry exports from Mexico to the 
United States. Mexican government officials (from headquarters to 
inspection officials located at exporting Mexican establishments) 
obtained technical assistance on meeting equivalent requirements of the 
U.S. meat and processed poultry inspection system;
Time frame: 2003;
Budget: $73,434.

Activity/Program type: Emerging Markets Program;
Description of activity: Technical assistance activity: Mexican 
officials obtained inspection requirements training and technical 
assistance for fresh-slaughtered poultry and egg products to help the 
officials meet equivalent requirements of the U.S. slaughter poultry 
and egg products inspection system;
Time frame: 2004;
Budget: $15,000.

Activity/Program type: Emerging Markets Program-U.S. Codex Office;
Description of activity: Support for Western Hemisphere countries' WTO 
participation: Working with the Inter-American Institute for 
Cooperation on Agriculture (IICA), FAS supports attendance at WTO/SPS 
committee meetings by select representatives of trade and regulatory 
agencies of the 34 IICA member countries (including Mexico). FAS's 
Emerging Markets Program funded this project, which helps countries in 
the hemisphere implement international trade agreements. All 34 IICA 
member countries sent representatives to WTO/SPS meetings held in 
Geneva in November 2002;
FAS also supported their participation in WTO meetings in April and 
June 2003. For 2004, Mexico has become a member of the Steering 
Committee for this program and, therefore, no longer receives funding 
to attend the meetings;
Time frame: 2002;
Budget: $10,000.

Activity/Program type: Emerging Markets Program-U.S. Codex Office;
Description of activity: Regional Codex Workshop: FAS/ICD, in 
cooperation with the U.S. Codex Office, organized a technical workshop 
in Mexico City, Mexico, in May 2004 for 31 Codex contact points and 
policymakers from 22 Latin American and the Caribbean nations, 
including Mexico. The workshop addressed food safety guidelines and 
avoidance of potential barriers to sanitary-phytosanitary protocols. 
Presenters from USDA/FSIS, USDA/FAS, FDA, and the countries' Codex 
offices addressed topics that included the following: key issues of the 
Codex Alimentarius Commission, Codex National Committees;
CCLAC Strategic Plan; SPS, TBT and TRIPS agreements, equivalence and 
Codex guidelines; product trace back; risk analyses; and biotechnology 
labeling;
Time frame: 2004;
Budget: $101,520.

Activity/Program type: Total;
Description of activity: [Empty];
Time frame: [Empty];
Budget: $298,412.

Source: GAO, based on FSIS data;

[End of table]

Other U.S. Agencies:

In its efforts to protect U.S. consumers, FDA has also undertaken 
activities that benefit Mexican agricultural producers. FDA's approach 
has been to work with Mexican government agencies to help them 
establish effective food safety regulatory, inspection, and enforcement 
infrastructure, focusing particularly on microbiological hazards. For 
example, if a food-borne disease outbreak resulting from a Mexican 
import occurs, FDA determines the cause and works with the Mexican 
government to try and resolve the problem and develop a system to 
prevent future outbreaks. FDA officials explained that in 1997 their 
agency launched its Food Safety Initiative (FSI) to improve the safety 
of the U.S. food supply, which includes imported foods. Because Mexico 
exports around $3 billion in fruits and vegetables to the United States 
each year, an important FSI component has been to help Mexican 
commodity exporters become more familiar with FDA regulatory 
requirements and to improve their ability to comply with U.S. food 
safety regulations. FDA activities under FSI have basically involved a 
series of training programs since 2002 for Mexican fruit and vegetable 
exporters, academics, and government officials. In addition to 
activities under FSI, FDA established the Southwest Import District 
Office in 1999 to enhance food inspection activities along the Mexican 
border. The Southwest Import District inspects imported goods entering 
the United States through the Mexican Border from Brownsville, Texas, 
to San Diego, California. During the last 4 years, FDA's Center for 
Veterinary Medicine has also participated in training and assisted in 
the establishment of a program in four agricultural states of Mexico to 
monitor pathogens that are transmitted via contaminated food. FDA 
reported it has spent about $1.8 million for its activities related to 
agricultural production in Mexico since NAFTA went into effect.

[End of section]

Appendix V: Recent U.S.-Mexico Collaborative Agricultural Activities 
under Partnership for Prosperity:

The Partnership for Prosperity (P4P) initiative has a few collaborative 
programs that are oriented towards agriculture. On the U.S. side, 
USDA's FAS, OPIC, and USAID have played key roles in implementing the 
programs.[Footnote 49] Overall, P4P seeks to create a public-private 
alliance and develop a new model for U.S.-Mexican bilateral 
collaboration to promote development, particularly in regions of Mexico 
where economic growth has lagged and is fueling migration. No new funds 
were specifically allocated to P4P by either government since the 
program's inception; instead, the U.S. government has sought to refocus 
resources already devoted to Mexico to create a more efficient 
collaborative network. According to State Department and USDA 
officials, since its establishment, P4P has become the "umbrella" under 
which development collaboration between the United States and Mexico 
takes place.

USDA's FAS has worked closely with several Mexican government agencies, 
including Mexico's new rural lending institution, Financiera Rural, to 
incorporate P4P's broader approach to rural development and assistance 
to small farmers. For example, FAS arranged for USAID to use its U.S. 
fellowship program to place one of its participants at Financiera 
Rural. Through this fellowship, Financiera Rural hosted a professor 
from the University of Minnesota who assisted the agency in developing 
a strategic plan to incorporate the new paradigm for rural development 
proposed in the P4P conferences, acknowledging that Financiera Rural is 
better suited to operate as a second-tier lender. This strategic plan 
calls for the development of rural financial lending intermediaries in 
Mexico, which will be fostered using a model that complies with 
Mexico's legal framework, determined by a study to be conducted jointly 
by the Financiera Rural and the International Development Bank. The new 
strategic plan also calls for the agency to fund any productive 
endeavor in the countryside, not only agricultural production. 
Activities could include such things as eco-tourism, rural gas 
stations, and transportation services. According to Financiera Rural 
officials, the guidance provided by the USAID fellow has positively 
contributed to Financiera Rural operations because funding and access 
to these types of resources and knowledge are not otherwise available 
in Mexico. Furthermore, the fellowship has provided support in trying 
to resolve the issue of limited credit availability--one of Mexico's 
most significant structural problems.

According to U.S. Embassy officials in Mexico, one of the most 
significant accomplishments under P4P has been the bilateral agreement 
to allow the Overseas Private Investment Corporation (OPIC) to operate 
and provide financing in Mexico. OPIC's mission is to help U.S. 
businesses invest overseas, to foster economic development in new and 
emerging markets, and to complement the private sector in managing the 
risks associated with foreign direct investment. According to OPIC 
officials, for over 30 years there had been resistance by the Mexican 
government to allow the agency to operate in Mexico because of concerns 
over sovereignty. Mexico did not want a U.S. government agency to 
provide loans in Mexico because that would mean that the agency could 
ask for collateral and possibly own Mexican property in the case of 
default on a loan. However, in 2003, an agreement was reached through 
P4P to allow OPIC to operate in Mexico.

Since the bilateral agreement was signed, OPIC has begun to provide 
financing for five projects in Mexico, including one related to 
agriculture. For the agriculture-related project, OPIC approved a $3.3 
million loan to Southern Valley Fruit and Vegetable, Inc., of Georgia 
to develop a new farming project in Mexico that will serve as a winter 
division of the company that will grow, package, and ship cucumbers, 
squash, eggplant, and zucchini. The project will employ approximately 
300 laborers and professionals in an area of high unemployment. 
Southern Valley has committed over $2.2 million in equity to the 
project. OPIC officials indicated that they expect their lending 
portfolio to grow in Mexico.

USAID plans to expand its activities in Mexico to support rural 
development. USAID officials explained that, overall, USAID has not had 
a large presence in Mexico, and historically funding for activities in 
Mexico has been limited. Furthermore, USAID activities in Mexico have 
typically been in the areas of population, democracy, governance, 
health, and micro-financing, instead of agriculture. However, in 2004 
USAID received an added $10.2 million specifically for rural 
development in Mexico, which brought its budget to $32 million. USAID 
is now working with other U.S. and Mexican agencies to develop projects 
to assist rural areas of Mexico. In recent months USAID has initiated 
several activities targeting rural development including:

* Small Farmer Support/Rural Business Development: Through this 
activity, USAID award h is providing targeted business development and 
marketing services to agricultural producer organizations and 
cooperatives in the southern rural states of Oaxaca and Chiapas.

* Connecting Small Producers with Market Opportunities: In partnership 
with Michigan State University and USDA, USAID launched this activity 
in late 2004 designed to allow small and medium producers to better 
compete for opportunities in the mushrooming domestic market for food 
and produce.

* Rural Finance: In late 2004, USAID expanded what had been an urban-
focused micro-enterprise finance program to include rural finance as a 
priority activity.

* University Partnerships: In 2004, USAID focused the ongoing Training, 
Internships, Exchanges, and Scholarships annual partnership competition 
on proposals that would spur agribusiness and other issues tied to 
rural economic growth. In August 2004, USAID awarded five new 
partnerships directly related to rural development.

[End of section]

Appendix VI: Comments from the U.S. Department of State:

United States Department of State:

Assistant Secretary and Chief Financial Officer:

Washington, D.C. 20520:

Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:

March 16, 2005:

Dear Ms. Williams-Bridgers:

We appreciate the opportunity to review your draft report, 
"International Trade: U.S. Agencies Need Greater Focus to Assist 
Mexico's Successful Implementation of NAFTA Agriculture Provisions," 
GAO Job Code 320246.

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report.

If you have any questions concerning this response, please contact 
Sigrid Emrich, Economic Officer, Bureau of Western Hemisphere Affairs, 
Mexico desk, at (202) 647-8112:

Sincerely,

Signed by: 
Christopher B. Burnham:

cc: GAO-Juan Gobel:
WHA-Linda Jewel:
State/OIG-Mark Duda:

Department of State Comments on GAO Draft Report:
International Trade: U.S. Agencies Need Greater Focus to Assist 
Mexico's Successful Implementation of NAFTA Agriculture Provisions, 
(GAO-05-272, GAO Code 320246):

The State Department commends the Government Accountability Office for 
its report on Mexico's implementation of NAFTA agriculture provisions. 
Given that 22 percent of Mexico's population lives in rural areas, we 
concur with the GAO's emphasis on the importance of accelerating rural 
development to achieve broad-based economic prosperity for the country.

We note that the title of the report suggests Mexico has failed to 
implement its NAFTA agricultural provisions. The text of the report, 
however, shows that implementation has been successful and that 
bilateral agricultural trade has expanded significantly. We would 
recommend that the GAO revise the title to recognize Mexico's 
successful implementation of NAFTA while pointing out that other market 
access issues involving non-tariff barriers still impede market access 
for some U.S. agricultural exports. The title on page 11 "U.S. 
Agricultural Exports Have Gained Greater Access to Mexico under NAFTA, 
but some Market Access Barriers Remain" may more adequately reflect the 
findings in the document.

The GAO suggests that lagging rural development in Mexico could affect 
the successful implementation of the remaining NAFTA agricultural 
provisions on January 1, 2008. The report generally overstates the 
breadth and strength of opposition to NAFTA in Mexico. Anti-NAFTA and 
anti-free trade groups have operated in Canada, Mexico and the United 
States since NAFTA was signed over ten years ago. While rhetoric about 
the impact on Mexico's farmers heated up in 2002, the Mexican 
government nevertheless successfully implemented its commitments 
including the eliminations of most tariffs on agricultural products on 
January 1, 2003. We have no reason to believe that the existence of 
groups that oppose further tariff elimination will lead the Mexican 
government to renege on its NAFTA obligations. In fact, the Mexicans 
continue to publicly and privately tout the benefits of the free trade 
agreement.

The GAO report contains statements on pages 29 and 34 that imply that 
the USG commits to providing technical assistance in post-NAFTA free 
trade agreements. In fact, we commit to discuss trade capacity building 
issues, but do not commit to providing any assistance.

We appreciate the GAO mentioning the rural development activities that 
we are conducting under the Partnership for Prosperity (P4P), but would 
like to point out that P4P has a much broader focus than mentioned in 
the report. NP is a public-private sector alliance to spur economic 
growth, bring development to parts of Mexico that have benefited less 
from NAFTA, and address some of the root causes of migration by 
creating new economic opportunities. P4P has worked successfully to 
reduce the cost of remittances, find innovative means to finance 
infrastructure projects, enhance cooperation on housing finance and 
construction, and to promote small business development.

The GAO report incorrectly lists State as the U.S. lead agency for NP 
on page 34. NP is co-led on the U.S. side by the Departments of State, 
Commerce, and Treasury. NP is co-led on the Mexican side by the Office 
of the President and the Ministries of Economy, Foreign Relations, and 
Finance.

The GAO correctly notes that P4P has not developed a specific strategy 
document for rural development. However, as described further below, in 
Spring 2004 USAID/Mexico, in coordination with the Government of Mexico 
and other Mexican stakeholders, carried out an assessment of the 
challenges to and opportunities for rural development in Mexico and 
subsequently refocused a significant portion of USAID funding and 
assistance mechanisms to begin addressing those challenges and 
opportunities. Further, on February 17, 2005, the U.S. and Mexican 
government leads agreed to create a new structure for P4P which creates 
seven permanent working groups: Competitiveness, Financial Issues, 
Rural Development, Housing (finance and construction), Infrastructure, 
Small Business and Human Capital Development. Each of the working 
groups has been asked to identify private sector co-leads and to 
develop an action plan for 2005 activities. The rural development 
working group is co-led by USDA, USAID and the Mexican Ministry of 
Agriculture.

In FY 2004, USAID obligated $10.2 million of Development Assistance 
funds (nearly one-third of its annual budget) for rural development, 
which includes the following primary activities:

Small Farmer Support/Rural Business Development: USAID awarded a new 
USAID Rural Prosperity three-year contract in September 2004. The 
contract team is based in Oaxaca and is providing targeted business 
development and marketing services to producer organizations and 
cooperatives in the southern rural states of Oaxaca and Chiapas. Also 
as part of this focus, USAID entered into a new public-private 
partnership with Starbucks Coffee and Conservation International 
designed to help Chiapas coffee growers generate sustainable sources of 
income by improving the quality of its shade-grown coffee. USAID is now 
looking at forming other similar private alliances to allow small 
farmers to better take advantages of opportunities in cacao and other 
possible niche markets.

Connecting Small Producers with Market Opportunities: The USAID rural 
assessment underscored the fast-growing importance of domestic markets 
(supermarkets) vis-a-vis export potential. Supermarkets represent 40 
percent of the overall market for produce in Mexico. In partnership 
with Michigan State University and USDA, USAID launched in late 2004 an 
activity designed to allow small and medium producers to better compete 
for opportunities in the mushrooming domestic market for food and 
produce.

Rural Finance: USAID has expanded what had been an urban-focused 
microenterprise finance program to include rural finance as a priority 
activity. In late 2004, USAID launched a new five-year, $10 million 
program designed to expand access to finance for Mexicans-including 
for the first time an explicit emphasis to provide technical assistance 
to rural financial institutions. This assistance will help rural 
financial institutions develop new products, better reaching and 
ultimately better serving small farmers and rural entrepreneurs with 
sustainable sources of financing. This will build and significantly 
expand upon the report's mention of rural finance cooperation 
established via the USDA Cochran fellow activity cited in the report.

University Partnerships: A centerpiece of the Partnership for 
Prosperity launched in 2001 has been USAID's Training, Internships, 
Exchanges, and Scholarships (TIES) program designed to promote close 
cooperation between U.S. and Mexican universities on joint research, 
exchanges, and projects that further NAFTA and other common development 
objectives. Thirty-sevenpartnerships have been awarded, in which U.S. 
Government funding has been matched on a 1:1 basis by private 
contributions. Tracking the increased focus by the U.S. on rural 
development, USAID in 2004 focused the TIES' annual new partnership 
competition on proposals that would spur agribusiness and other issues 
tied to rural economic growth. In August following an evaluation, USAID 
awarded five new partnerships directly related to rural development.

Finally, regarding the report's discussion of increasing U.S. and 
Mexican policy attention on rural development, it should be pointed out 
that at the June 2004 P4P annual conference in Guadalajara, Mexico, 
attended by over 650 senior U.S. and Mexican private sector and 
government representatives, that U.S. and Mexico developed a specific 
workshop on rural development. Key concepts from the USAID rural sector 
assessment, such as how to link small/medium producers to opportunities 
presented by the explosion of supermarkets, were highlighted at this 
roundtable discussion. The P4P roundtable was followed by a discussion 
on rural development between senior USDA, USAID, and Government of 
Mexico representatives at the cabinet-level U.S. Mexico Binational 
Commission (BNC) in Mexico City, November 2004.

The GAO report recommends that the State Department work with other 
government agencies to develop an action plan under P4P laying out 
specific collaborative efforts and to set timeframes and performance 
measures for these activities. As the GAO report rightly points out, 
P4P uses existing resources to implement programs and conduct events. 
Collaborative efforts on rural development, as in all P4P working 
groups, are constrained by the availability of funding. As a public-
private sector alliance, any P4P action plans must be coordinated with 
U.S. and Mexican government officials as well as private sector 
representatives of each working group.

The following are GAO's comments on the State Department's letter dated 
March 16, 2005.

GAO Comments:

1. We revised title to make clear that we are not suggesting that 
Mexico has failed to implement its obligations under NAFTA's 
agricultural provisions.

2. We do not believe that we overstate the opposition to NAFTA in 
Mexico. As noted in the report, U.S. and Mexican officials have 
expressed concerns about how negative perceptions of NAFTA may impact 
successful implementation of the agreement. In addition, the report 
recalls the difficulties experienced in Mexico at the time of tariffs 
elimination under NAFTA in 2003.

3. We changed language in the two locations of the report cited by the 
State Department to clarify that as a matter of course the United 
States has not committed to providing technical assistance to its post-
NAFTA free trade partners. The report now states simply that the United 
States has recently provided such assistance.

4. The points about the P4P Initiative noted by the State Department 
are also mentioned in our report. We did not consider it necessary to 
make revisions to address these points.

5. In our recommendations we identify the Secretary of State as the 
head of one of the agencies taking the lead on P4P activities. We have 
added a footnote in appendix V on P4P activities to clarify the roles 
of the Departments of Commerce and Treasury. While these departments 
also have a leading role in P4P activities, they are not directly 
involved in activities related to rural development or the agricultural 
sector, and therefore our recommendation is not addressed to these 
agencies.

6. Our review was concluded by the time the Partnership for Prosperity 
working groups cited by the State Department had taken place. These 
developments may represent the first steps in addressing our 
recommendation.

7. We revised appendix V of the report to include key elements of the 
information provided on recent USAID activities.

[End of section]

Appendix VII: Comments from the U.S. Department of Agriculture:

United States Department of Agriculture;

Mr. Loren Yager:
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, NW:
Washington, D.C. 20548.

Dear Mr. Yager:

Thank you for the opportunity to review and comment on the Government 
Accountability Offices's draft report emtitled "International Trade: 
U.S. Agencies Need Greater Focus to Assist Mexico's Successful 
Implementation of NAFTA Agriculture Provisions" (GAO-05-272). I would 
like to offer the following brief comments for your consideration.

The report offers a thoughtful analysis of the complex agricultural 
trading relationship between the United States and Mexico, highlighting 
the tremendous gains in agricultural trade made during the 
implementation of NAFTA, as well as identifying some of the hurdles 
that have been and remain to be overcome. 

The report also highlights the wide range of activities undertaken by 
the U.S. Department of Agriculture (USDA) in its effort to strengthen 
the overall agricultural relationship between the United States and 
Mexico. USDA, through its individual mission areas, has engaged its 
Mexican counterparts through numerous targeted programs. While these 
activities have led to important progress in the development of 
Mexico's agricultural and rural sectors, GAO accurately points to the 
need to ensure that these programs work in a coordinated fashion to 
achieve our overall goal of the successful and complete implementation 
of NAFTA. 

USDA stands ready to work with the U.S. Department of State and other 
agencies, under the Partnership for Prosperity Initiative, to develop 
collaborative efforts on rural development that would support and 
facilitate the continued successful implementation of NAFTA.

However, as the report rightly recognizes, the complexity of rural 
development in Mexico is such that ultimate success will require far 
more than assistance from USDA and other U.S. government agencies. The 
Government of Mexico must assume a sustained leadership role in the 
pursuit of the growth of its rural sector. Among the critical steps 
needed, reform must be undertaken in Mexico's policies governing land 
tenure, investment, infrastructure, education, security and 
agricultural support.

We have also enclosed additional comments of a more technical nature 
for your consideration.

In closing, I again want to thank you for allowing us to comment on 
this draft report. Please let us know if you would like to discuss our 
comments further.

Sincerely,

Signed by:

A. Ellen Terpstra:
Administrator:

Enclosure:

[End of section]

Appendix VIII: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Christine Broderick, (415) 904-2240:
Juan Gobel, (213) 8301-031:

Acknowledgments:

In addition to those listed above, Ming Chen, Francisco Enriquez, 
Matthew Helm, Sona Kalapura, Jamie McDonald, Marisela Perez, and 
Jonathan Rose made key contributions to this report.

(320246):

FOOTNOTES

[1] The General Agreement on Tariffs and Trade (GATT) was created in 
1947 to encourage liberalized trade between member states by regulating 
and reducing tariffs and nontariff barriers on traded goods. GATT, 
which was succeeded by the World Trade Organization (WTO) in 1994, 
functioned as the primary multilateral organization governing 
international trade.

[2] See GAO, North American Free Trade Agreement: Assessment of Major 
Issues, Volume 2, GAO/GGD-93-137 (Washington, D.C.: Sept. 9, 1993).

[3] Before NAFTA, Mexico controlled imports of various commodities by 
requiring prior import permits or licenses and limiting the number of 
licenses issued for these commodities. Prior to NAFTA, about 25 percent 
of the value of U.S. agricultural exports to Mexico were subject to 
licensing requirements.

[4] The Statement of Administrative Action for NAFTA clarifies the 
tariff reduction rates for each of the staging categories.The Statement 
of Administrative Action is a document that was submitted to Congress 
along with the implementing bill for NAFTA, and describes significant 
actions proposed to implement NAFTA (House Doc 103-159, p. 450).

[5] NAFTA was the first free trade agreement to include TRQs as a 
method of eliminating quantitative restrictions on sensitive 
commodities. 

[6] SPS requirements are measures that protect human, animal, and plant 
life and health from risks arising from animal or plant pests or 
diseases, food additives, or contaminants. Sanitary refers to human or 
animal health, while phytosanitary refers to plant health.

[7] Antidumping duties are a trade remedy that may be imposed to offset 
the injurious effect of unfair pricing practices known as "dumping." 
Dumping refers to the sale of a commodity in a foreign market at a 
price lower than its fair market value in the home market. 
Countervailing duties may be imposed on imports that harm or threaten 
harm to the domestic industry to offset subsidies provided to producers 
in the exporting country.

[8] Safeguards are temporary import barriers, usually in the form of 
duties, which may be applied in cases where a domestic industry is 
determined to be injured or threatened to be injured from increased 
imports. The industry is required to make adjustments during a 
transition period while the safeguard is in place. 

[9] About 75 percent of all Mexican agricultural producers have farms 
of less than 5 hectares.

[10] Subsistence farming refers to agricultural production that 
provides for the basic needs of the farmer without surpluses for 
marketing. According to Mexican government data, around 85 percent of 
corn producers have farms of fewer than 5 hectares. 

[11] The value of Mexican fruit and vegetable exports to the United 
States in 2003 real dollars almost doubled from about $1.7 billion in 
1993 to $3.3 billion in 2003 according to U.S. Census data.

[12] The Environmental and Social Impacts of Economic Liberalization on 
Corn Production in Mexico, study commissioned by Oxfam Great Britain 
and the World Wildlife Fund International, September 2000.

[13] Daniel Lederman, William F. Maloney, and Luis Serven, Lessons from 
NAFTA for Latin American and Caribbean (LAC) Countries: A Summary of 
Research Findings, Office of the Chief Economist for Latin American and 
Caribbean, the World Bank, December 2003, advance edition.

[14] USDA points out that rapid urbanization in Mexico has created 
great political urgency for a low-price food policy; food imports help 
the provision of low-cost food.

[15] Evaluacin integral de los impactos e instrumentacin del captulo 
agropecuario del TLCAN (Comprehensive Evaluation of the Impact and 
Implementation of NAFTA's Agricultural Chapter), El Colegio de Mxico, 
Universidad Autnoma de Chapingo, and Facultad Latinoamericana de 
Ciencias Sociales, April 2004.

[16] Mexico also maintains tariffs until January 1, 2008, on poultry 
imports under a safeguard measure it imposed in July 2003. See 
discussion below on Safeguards.

[17] Similarly, the United States is expected to eliminate its 
remaining tariffs on imports of sugar, peanuts, and orange juice from 
Mexico by 2008.

[18] NAFTA's dispute settlement procedures are set forth in four 
separate NAFTA chapters: Chapter 11 (disputes related to investment), 
Chapter 14 (disputes related to financial services), Chapter 19 
(disputes related to antidumping and countervailing duties), and 
Chapter 20 (disputes related to the general interpretation or 
application of the agreement).

[19] Under NAFTA, the United States requested consultations regarding 
Mexico's application of TRQs to dry beans in 2000 (NAFTA 2020), which 
was settled in 2001. In this case, Mexico and U.S. negotiations 
resulted in an agreement of Mexico's TRQ allocation through an 
auctioned permit system for dry beans. The United States has requested 
formal consultations with Mexico through the WTO for the following 
disputes involving agricultural products: antidumping investigation on 
high-fructose corn syrup in 1997 and 1998 (DS/101 & 132); antidumping 
duties on imports of hogs in 2000(DS/203); antidumping duties on beef 
and rice in 2003 (DS/295); and tax on beverages in 2004 (DS/308). 
Mexico has revoked its antidumping duties on hog imports and high-
fructose corn syrup. Conversely, according to USTR, to date Mexico has 
brought six dispute settlement cases against the United States under 
NAFTA and one under the WTO dispute settlement process. It is worth 
noting that a country's decision to initiate a case under NAFTA or WTO 
dispute settlement proceedings does not necessarily mean its trade 
partner's actions violate provisions of these trade agreements.

[20] United States Department of Agriculture, Effects of North American 
Free Trade Agreement on Agriculture and the Rural Economy, WRS-02-1 
(Washington, D.C.: July 2002).

[21] The intent is to achieve prompt and effective resolution of 
commercial disputes, with special attention to perishable items. The 
committee is composed primarily of private sector representatives but 
also has government participants. 

[22] Export trade values are adjusted for inflation and are presented 
in 2003 U.S. dollars using the Bureau of Economic Analysis End Use 
Export Index to filter out agricultural product price fluctuation. In 
nominal terms (i.e.,unadjusted for inflation) U.S. agricultural exports 
to Mexico have actually grown from $3.6 billion in 1993 to $7.9 billion 
in 2003. See appendix I for additional information on our methodology.

[23] Import trade values are adjusted for inflation and are presented 
in 2003 U.S. dollars using the Bureau of Economic Analysis End Use 
Import Index to filter out agricultural product price fluctuation.

[24] Several studies conducted prior to NAFTA concluded that market 
liberalization, combined with the demands of a growing population and 
an expanding economy in Mexico, would provide opportunities for the 
United States to export greater amounts of agricultural products to 
Mexico. Our earlier work in a series of three reports on U.S.-Mexico 
agricultural trade also concluded that increased liberalization of 
agricultural trade would generally be beneficial for the U.S. 
agriculture industry. See GAO, U.S.-Mexico Trade Impact of 
Liberalization in the Agricultural Sector, NSAID-91-155 (Washington, 
D.C.: Mar. 29, 1991); GAO, U.S.-Mexico Trade: Extent to Which Mexican 
Horticultural Exports Complement U.S. Production, NSAID-91-94BR 
(Washington, D.C.: Mar. 20, 1991); and U.S.-Mexico Trade: Trends and 
Impediments in Agricultural Trade, NSAID-90-85BR (Washington, D.C.: 
Jan. 12, 1990).

[25] In 2003, exports of these products accounted for 85 percent of the 
total value of U.S. agricultural exports to Mexico. 

[26] Export trade values for these commodity groups are adjusted for 
inflation and are presented in 2003 U.S. dollars using Harmonized 
System Export Indexes to filter out agricultural product price 
fluctuation.

[27] HFCS is a food sweetener derived from corn and is found in 
numerous foods and beverages. 

[28] WTO Cases DS/203 and DS/295.

[29] The NAFTA partners also agreed to work through the NAFTA Committee 
on Sanitary and Phytosanitary Measures to facilitate technical 
cooperation in the development, application, and enforcement of SPS 
measures.

[30] Trade capacity building is assistance intended to help developing 
countries benefit more broadly from a rules-based trading system. The 
Bipartisan Trade Promotion Authority Act of 2002 (Title XXI of the 
Trade Act of 2002, P.L. 107-210, Section 2102) declared that among the 
principal negotiating objectives of the United States are to strengthen 
the capacity of U.S. trading partners. Specific categories of trade 
capacity building assistance included trade facilitation; human 
resources and labor standards; agricultural development, such as 
promoting agribusiness; financial sector development; and 
infrastructure development. See GAO's recent report U.S. Trade Capacity 
Building Extensive, but Its Effectiveness Has Yet to be Evaluated, GAO-
05-150 (Washington, D.C.: Feb. 11, 2005).

[31] WTO Case DS/308.

[32] Ejido is a form of land tenure arrangement. It does not allow for 
full property rights. In the aftermath of Mexico's revolution (1910-
1917), the Mexican government began to dismantle the country's large 
haciendas and distributed the land in ejidos and Indian communes. The 
reform succeeded in fragmenting Mexico's agricultural land to a very 
large extent. Each ejidatario or comunero was provided approximately 30 
hectares to work on. In order to prevent the re-emergence of large 
haciendas, the Mexican Constitution prohibits individuals from owning 
more than 100 hectares of irrigated land. Neither ejidos nor the Indian 
communes allow for full property rights. Ejidos and Indian communal 
land cannot be used as guarantees for credit because banks are not 
allowed to take them over if repayments are not made.

[33] Transgenic products refer to a plant or animal variety that 
contains genes from a different species transferred using genetic 
engineering techniques.

[34] In recent months USAID has obligated funds for several rural 
development activities in Mexico. See appendix V for a description. 

[35] Remittances refer to the portion of international migrant workers' 
earnings sent back from the country of employment to the country of 
origin.

[36] Mexico established Financiera Rural in 2002, and it is still in a 
development stage. It replaced an earlier Mexican government 
agricultural lending institution, Banrural, which went bankrupt because 
of high operating costs.

[37] Minimum pricing is also referred to as reference pricing. 

[38] Under NAFTA, Mexico also agreed to phase out a 20 percent tariff 
on U.S. beef offal over a 9-year period that ended on January 1, 2003. 

[39] WTO Case DS/295.

[40] For example, in 2003, Mexico's applied tariff rate on imports of 
U.S. yellow corn that exceeded the NAFTA TRQ levels was less than 2 
percent, while the out-of-quota tariff rate specified under NAFTA was 
more than 70 percent.

[41] WTO Case DS/308.

[42] WTO Cases DS/101 and DS/132.

[43] Under NAFTA, over-quota trade of pork faced a tariff of 10 to 20 
percent in 2002.

[44] Safeguard was placed on fresh/chilled/frozen pork and hams.

[45] Due to an infestation believed to have originated from Asian rice 
shipments, Mexico banned all rice imports from Asian countries in 1993. 
Mexico removed the ban in 1996, but still subjects Asian rice to strict 
phytosanitary requirements. Additionally, no major Asian rice producer 
allows exports of rough, unmilled rice because rice milling is a value-
added process and source of employment in those countries.

[46] WTO Case DS/295.

[47] The Mexican government invited producer groups and other rural 
organizations to participate in nearly 4 months of public hearings and 
negotiations. The government and many of the participating 
organizations signed the National Agreement for the Countryside 
(Acuerdo Nacional para el Campo) in 2003. The document includes a plan 
to reallocate more than 18.8 billion pesos ($1.8 billion) in government 
funds to a variety of emergency activities. 

[48] The Emerging Markets Program is an FAS program, but various USDA 
agencies implement activities under this program, which are listed in 
tables corresponding to the agencies discussed below.

[49] On the U.S. side, P4P is co-led by the Departments of State, 
Commerce, and Treasury. On the Mexican side, P4P is co-led on the 
Mexican side by the Office of the President and the Ministries of 
Economy, Foreign Relations, and Finance.

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