Formation of the North American free trade area and 'integration' of agri-food market under NAFTA

The purpose of this paper is to examine the process and driving forces of the formation of the North American Free Trade Area and to discuss the characteristics of 'integration' of the agri-food market under NAFTA. Major driving forces of NAFTA are the huge market of the United States and foreign business operation of multinational corporations. Market integration in the agri-food industry has substantially developed under NAFTA; however, the achievement and characteristics of market integration differ by sub-sector of the agri-food industry. I will focus on the market integration of grain, oilseed, red meat and greenhouse vegetables between the US and Canada. The main conclusions of the paper are the following points. First of all, the main purpose of NAFTA is not only trade liberalization but also elimination of regulation on foreign direct investment. In this context, NAFTA is the agreement at the stage of increasing intra-firm trade in North America. Secondly, the purpose of NAFTA is the free movement of goods and capital, but movement of the labor force is strictly limited under NAFTA. This is the distinctive point compared with integration in the European Union, which is pursuing free movement of goods, capital and labor force. Unlike EU-type market integration, NAFTA does not pursue shrinking the big disparity of wage level between the US/Canada and Mexico. Rather, multinational corporations have got benefit by such a big disparity of wage. Thirdly, a major driving force of agri-food market integration is also foreign business operation by multinational corporations. Canada has been an important supplier of resource and primary goods for US companies and market. Canada's export of grain, oilseed and red meat to the US has increased rapidly under NAFTA. Fourthly, there is asymmetry regarding economic structure, wage level and farming structure between the US/Canada and Mexico. Mexican corn growers have been put in difficulty by trade liberalization under NAFTA accompanied by deregulation of the domestic staple food market and elimination of domestic support for grain farmers. Labor forces from small-scale corn farms in Mexico have moved to the Maquiladora sector in the northern region or to the US and Canada as seasonal or temporary workers.