NAFTA is an agreement that began in 1994 among the United States, Canada, and Mexico removing most barriers to trade and investment. Under the agreement, all nontariff barriers to agricultural trade between the United States and Mexico were eliminated immediately or over a period of 5 to 15 years, while Mexico and Canada reached a separate agreement with the same provisions. These barriers were converted to either tariff-rate quotas or ordinary tariffs. Tariffs still apply between Mexico and Canada for dairy, poultry, eggs, and sugar. All agricultural tariffs between the United States and Canada, with a few exceptions for items covered by tariff-rate quotas, were removed by 1998. These were part of the U.S.-Canada Free Trade Agreement (FTA) which has been in effect since 1989.

Canada and Mexico are two of the largest export markets for U.S. agricultural products. In fiscal year 1996, nearly one out of every five dollars earned through U.S. agricultural exports was earned in North America. U.S. farmers, food processors, and exporters shipped more than $210 million worth of agricultural products to Canada and Mexico each week!

In the years prior to NAFTA, U.S. agricultural products lost market share in Mexico due to increased competition. Now the United States supplies around 75 percent of Mexico's total agricultural imports. For example, the U.S. market share of pork increased from 77 percent prior to NAFTA to over 95 percent in 1996. U.S. exports of corn/maize, soybeans, wheat, cotton, and rice all set new records, and in 1996 more U.S. agricultural products went to Mexico than to China, Hong Kong, and Russia combined. In addition, NAFTA cushioned the blow felt by U.S. exporters during the Mexican economic crisis and peso devaluation. The agreements helped speed recovery because of preferential access for U.S. products.

Before the 1989 FTA with Canada, U.S. products generally accounted for less than 60 percent of total Canadian agricultural imports. Now U.S. products make up around two-thirds of total import value because of lower tariffs and preferential U.S. access under FTA/NAFTA. Fresh and processed fruits and vegetables, snack foods, and other consumer foods account for close to three-fourths of U.S. sales. U.S. exports of bulk, intermediate, and consumer-oriented products to Canada all set records in 1996. New value highs were set for corn/maize, rice, soybean meal, animal fats, planting seeds, snack foods, breakfast cereals, poultry meat, processed fruits and vegetables, juices, and other products.

NAFTA allowed the United States and Mexico to protect import-sensitive sectors with longer transition periods, tariff-rate quotas, and special safeguard provisions. However, once the 15-year transition period has passed, free trade will prevail for all agricultural products.

Special safeguard provisions protect import-sensitive crops, such as dairy products, cotton, sugar-containing products, peanuts, sugar, and frozen concentrated orange juice. Special provisions also provide relief against import surges by allowing only a specified quantity of a selected product to enter at low or preferential duty rates. Higher tariffs are automatically triggered when imports reach a specified level. The United States applies this safeguard on imports of onions, tomatoes, eggplants, chili peppers, squash, and watermelons. Mexico applies this safeguard on applies, potato products, and live swine and most pork products.

NAFTA imposes regulations on the development, adoption, and enforcement of sanitary and phytosanitary measures. Although it encourages trading partners to adopt international and regional standards, the agreement explicitly recognizes each country's right to determine the necessary level of protection.

The three NAFTA countries also work toward the elimination of export subsidies in North America. The United States and Canada are allowed to provide export subsidies into the Mexican market to counter subsidized exports from other countries. Neither Canada nor the United States is allowed to use direct export subsidies for products being sold to the other, and both countries are required to consider the export interests of the other whenever subsidizing agricultural exports to third countries.

NAFTA improves incentives for buying within the North American region and ensures that North American producers receive the primary benefits of all tariff preferences. Goods not originating from the United States, Mexico, or Canada must be significantly transformed or processed in that country before they receive NAFTA's lower tariffs for shipment to one of the two other countries. The NAFTA rules of origin for agricultural products were constructed to prevent Mexico from becoming an export platform for processed products made from subsidized raw materials originating in non-NAFTA countries. The de minimis provision allows up to 7 percent of non-NAFTA-origin product to be included in final NAFTA goods. This does not apply to bulk agricultural commodities and certain processed products, such as orange juice and cheese.