efficient producers of corn in the world. Corn is one of just a handful of
U.S. exports to Mexico that received a 14-year transition period (1994-2007)
to duty-free trade as part of NAFTA. In hindsight, this restrictive policy
appears to have had some negative effects on Mexican hog producers. It
limits the amount of corn that can be imported, it appears to exert upward
pressure on the price of substitute feed grains (most notably sorghum), and it
denies Mexican producers the opportunity to utilize hedges and other
opportunities for speculation with respect to corn.
To lessen these effects, Mexico has pursued a more liberal import policy
towards corn than NAFTA requires. As an example, consider the policy
implemented for 2002. NAFTA obligated Mexico to provide the United
States with a duty-free tariff-rate quota (TRQ) of about 3.2 million metric
tons. Under the agreement, imports above this amount could have been
charged an over-quota tariff of 108.9 percent. Instead, the Mexican
government issued import permits (referred to as cupos) that allowed an
additional 3.167 million metric tons of U.S. corn to be imported, with over-
quota tariffs of just 1 percent for yellow corn and 2 percent for white corn.
Nevertheless, the cupo system still operates as an import restriction, as both
the duty-free quantity under NAFTA and any additional amounts subject to
cupos must be allocated to parties in several industries, including not only
hog producers but also poultry producers, starch manufacturers, and flour
millers, among others.
There is some evidence that the cupo policy has made sorghum more
expensive than corn in the Mexican import market. Historically, corn and
sorghum prices in the United States (both farm prices and at the Chicago
Board of Trade) have been roughly the same. In Mexico, however, U.S.
sorghum has tended to have a higher price than Mexican sorghum
throughout the NAFTA era. In the State of Veracruz, sorghum imports were
even more expensive than cracked corn imports from July to December 2002
(fig. 5). During that period, cost differences between sorghum and corn in
excess of $7.50 per metric ton were common.
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