The impact of the North American regional trade agreement on Mexico's horticulture

Under the North American Free Trade Agreement (NAFTA) the horticulture sector became Mexico’s fastest-growing industry, with fruit and vegetable exports increasing by 650% between 1995 and 2019. Today, it is a world leader in the export of tomatoes, avocados, berries, grapes, peppers and chillies. Since the treaty came into force in 1994 the sector has invested in innovation and technology to improve its productive processes and commercial strategies, which was key in transforming the industry and positioning it at the forefront of global trade. The US-Mexico-Canada Agreement (USMCA), which is poised to replace NAFTA once it is ratified by all signatories and which Mexico ratified in June 2019, also includes important provisions for the industry.

Dumping Dispute

During negotiations for the USMCA, Mexico’s horticulture was threatened by a US proposition that would modify subsidies through anti-dumping regulations, allowing the US to fast-track investigations on dumping activities and subsidies, without full representation of the Mexican industry. It would be focused on short-term assessments over potential harmful activities and open the door to compensation quotas for the same products across different regions throughout the year. Mexico argued that this proposal violated World Trade Organisation agreements, which do not have specifications on perishable and seasonal agricultural products. Accepting this proposal would cause irreparable harm to the national farming industry, pulling it away from the increasingly important US market. It would also result in the loss of over 5m jobs and have a severe socio-economic impact.

Despite the strong position and the intensive lobbying Mexico led during the negotiations, the US state governments of Florida and Georgia tried to push the proposition forward in the country’s national Congress. However, a US coalition of local producers opposed these states’ proposal. In the end, the clause was not included in the treaty, and Mexico’s industry of perishable products will be able to further expand its market presence in the US.

Phytosanitary Conditions

The agreement guaranteed free trade principles to all agriculture products, with parties committing to eliminating subsidies on such goods. What is more, an ambitious phytosanitary platform was created to facilitate trade and access to agriculture products within the region, and establish control and monitoring mechanisms to preserve the phytosanitary conditions of the Mexican market. Processes such as risk analysis, certification and audits were made more efficient, and simplification procedures were increased to level the playing field for quality assurance and regionalisation. Mexico has made costly and significant investments to ensure it complies with these regulations, as it is necessary to protect the country from serious risks such as plagues, sicknesses and toxic waste that stems form the use of pesticides and other non-authorised chemical products.

Labour

Players in the horticultural sector were concerned about the treaty’s stipulations on legal proceedings. The industry strove to and was successful in ultimately basing legal procedures on sustained, constant actions, as well as recurrent ones. This will have a significant impact on trade and investment, ensuring the productive sectors that cases on labour issues will be opened on the basis of real, proven incidents.

Through improvements in Customs and cost efficiency for commercial operators, Mexico strengthened its position as an exporter while building efficiency, participation and integration within regional supply chains. The USMCA brings several advantages to sector, such as preserving value chains and clearing up any uncertainty. The implementation and enforcement of the treaty will be key to the sector’s future growth.

OBG would like to thank Lola Aguirre, Founding Partner, Aguirre & Aguirre Lawyers, for their contribution to THE REPORT Mexico 2019.