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Understanding NAFTA's relevance to California's Central Valley

The North American Free Trade Agreement (NAFTA) has brought benefits to California agricultural industries, but those benefits are not always evenly distributed.
Credit: bernardbodo
Harvesting in autumn

The United States and Mexico have reached a preliminary agreement on a trade policy that has been both a benefit and a hindrance to different Central Valley farmers.

While some agricultural growers have benefited from the North American Free Trade Agreement (NAFTA), others have been hurt by it, like asparagus growers.

While the agreement includes more than just agricultural trade, it’s a strong point for the California’s Central Valley agriculture. Elements such as lower taxes on goods crossing the border have resulted in consumers getting access to more variety and cheaper products.

As a new agreement enters its preliminary stage, Dr. Tomas Gomez-Arias, Dean of Stanislaus State’s College of Business Administration, explains what NAFTA does and why it’s relevant to the Central Valley.

A free trade agreement between large trading partners

NAFTA is an agreement between the United States, Mexico, and Canada. Canada and Mexico are some the largest trading partners for the United States.

Generally, the agreement allows them to lower taxes that are charged on imports from other countries. In the end, a customer would generally benefit from wider selection and cheaper products.

“That’s the basic idea. You think about things in the supermarket for example where... what we buy are grown in the U.S. some others are grown in Mexico,” said Gomez-Arias. “The initial processing can be done in Mexico, the final packing in the U.S., and then distributed for consumption in the U.S., Canada, and Mexico.”

The agreement has allowed for specialized production and different operations in both countries within the same company and across companies, and it has allowed consumers to have access to higher quality produce and access to cheaper produce.

NAFTA and its relevance to the Central Valley

“Almonds, cheese, beef, tomatoes, tomato products, cherries, you name every single product that is produced around us in the Central Valley and having the ability to sell in Mexico is important…”, said Gomez-Arias.

Mexico is the fifth largest market for the United States. Some of the key exports from California to Mexico include dairy, processed tomatoes, almonds, peaches and nectarines, table grapes, walnuts, flowers and nursery products, and pistachios.

In 2016, Mexico was the main export destination for 30 percent of dairy products; one of California’s top exports.

“The countries with which we have the largest trade are the ones where we can get the largest impact with a free trade agreement. And Mexico and Canada are the largest trading partners of the U.S,” Gomez-Arias added. “Since Mexico and Canada are some of the largest trade partners that we have, it makes sense that we have a very special trading relationship with them and we facilitate that relationship.”

Under both NAFTA and the new preliminary agreement, the tariffs on agricultural products traded between the U.S. and Mexico remains at zero.

Not every industry stands to benefit 

“Every country is better at something than others," explained Gomez-Arias. "The same thing goes for agricultural crops. We are very efficient in some agricultural products. We are not so efficient in others, especially compared to other countries.”

Knowing that the effects of a trade agreement are not always distributed evenly, some countries can stand to benefit more than other countries. While some agricultural groups producing corn may have seen a benefit, other producers may experience a negative effect.

Gomez-Arias said that Mexico’s corn production was impacted heavily by NAFTA. Producers in Mexico were unable to compete with the efficiency of American producers. In recent years, Mexico became a large export destination for corn, according to the Farm Bureau.

Similarly, California asparagus producers struggled with NAFTA. According to the United States Department of Agriculture (USDA), California asparagus acres reduced from 29,000 in 2003 to 13,000 in 2012.

According to the Center for Urban Education about Sustainable Agriculture, the asparagus harvest is "one of the more labor-intensive jobs in agriculture," and the discrepancy in labor standards are reason behind the higher price of locally grown asparagus. While those labor standards are important, they can leave industries at a disadvantage to countries where those standards are not implemented.

The labor intensity for a specific product is also a notable advantage when it comes to cheap labor. Cheaper labor can make that product more efficient to produce in one country than another.

“Even if a trade agreement is good in general, it’s not going to be good for every single industry and every single individual.”

What Central Valley experts will be looking for in a new agreement

There is some hesitancy as to whether a rebalanced NAFTA agreement would bring a large change or a significant impact to Central Valley farms.

One of the key elements in the agreement that Dr. Gokce Soydemir, a Professor of Business Economics at Stanislaus State, addressed was that 40 to 45 percent of auto content would be made by workers earning at least $16 an hour. Soydemir says this is an advantage for the U.S. steel workers, but not necessarily for the farmers in the Central Valley.

“If however, it prevents retaliation, Central Valley farmers will maintain their gain as they did in the past from free trade with Mexico and will not face any losses, but will likely not go much further than that in terms of additional gains,” Soydemir added.

The principal concern from Gomez-Arias and Soydemir was any potential disbanding of NAFTA. With the agreement in the preliminary stages, however, there would be two standout components in a new agreement, if they were to address, labor standards and non-tariff barriers.

“One of the trends in trade agreements negotiated over the last few years is the inclusion of labor standard requirements,” Gomez-Arias said. “One of the reasons why one country may be more efficient in terms of having cheaper labor is because they are not treating employees well.”

While North American countries do not have large non-tariff barriers that exclude industries from markets, according to Gomez-Arias, he nonetheless believes that non-tariff barriers are a key issue to address in trade agreements.

“If those are included in a significant way in this new version of NAFTA, that would probably be the most revolutionary part of this agreement if there is a major push to address non-tariff barriers,” he said.

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