In June of 1990, the Presidents of Mexico and the United States issued a joint statement on negotiation of bilateral free trade agreement (FTA). This statement called for a discussion on tariffs, non-tariff barriers such as quotas and licenses, individual property rights, dispute settlement procedures, and expansion of commerce and investment. In September of 1990, President Bush notified the Senate Finance committee of intentions to enter trade negotiations with Mexico. In the spring of 1991, authorization of "fast track" authority was approved, formal talks began immediately, and are still underway.

The impact of the proposed free trade agreement on the U.S. floral and nursery industry is speculative at this time. Even when an agreement is reached, it is not mandatory that all sectors of agriculture be included. In addition, the issue of injurious plant pests would still have to be addressed.

At present, the importation of plants into the U.S. is regulated by the U.S.D.A's Animal and Plant Health Inspection Service - Plant Protection and Quarantine (APHIS-PPQ). Under Title 7, Part 319 of the APHIS-PPQ regulations, strict guidelines are described for bringing plants into the United States. These guidelines effectively prohibit the importation of plants, grown in Mexico, into the U.S.. However, under Title 7, the plant protection service of another country can enter into an agreement with APHIS-PPQ to implement a program which complies with the provisions established to ensure a pest free environment.

The Department de Sanidad Vegetal is Mexico's plant protection service. This agency is currently in the process of establishing an agreement with APHIS-PPQ to permit the importation of plants into the U.S.. The list of plants is limited and sanitation practices detailed in Title 7; section 319.37-8 have been proposed.

The agreement between APHIS-PPQ and Sanidad Vegetal and the free trade agreement are two, totally separate issues. Even if the FTA receives approval, imported plant materials would still have to meet phytosanitary standards before they could be imported. On the other hand, even if the FTA does not receive approval or if the nursery industry is excluded from the agreement, plants could still be imported if APHIS-PPQ reaches an agreement with Mexico's plant protection service.

Imports from Mexico

Even though the importation of plants with soil on the roots is prohibited, many greenhouse and nursery products have been legally imported from Mexico for years, provided they have met phytosanitary requirements. These include cutflowers, unrooted cuttings, air layers, seeds of various ornamental plants, cane, and several other items. These products have become an important source of plant materials world wide and have helped many U.S. growers (which use these materials as propagation stock) remain profitable in our highly competitive marketplace. Imports of greenhouse and nursery products

Figure 1. Value of U.S. imports from Mexico of greenhouse and nursery products, 1982-1988.

Mexico is a major source of unrooted cuttings, primarily for the foliage plant industry. Dracenas, dieffenbachia, croton, nepthitis and pothos lead the list of top exports into the U.S.. Air layers of Ficus be washed before they are allowed across the border. All of these plant materials are also subject to inspection by APHIS-PPQ prior to entry to the U.S.

Certain species of ferns, African violets, gloxinia, begonia, peperomia, and hyacinths may also be imported in unused peat, sphagnum moss, vermiculite, or other synthetic growing media. However, there must be a written agreement between the USDA-PPQ and the plant protection agency of the country of origin. Growers must also agree to comply with stringent cultural practices outlined in the Q37 regulations.

Seed is another major horticultural export from Mexico. Several seed grown palms and other ornamental plants are widely used throughout Europe and the U.S.. These seed are usually collected from the wild, accumulated, cleaned, processed, and shipped to brokers for distribution.

Dracena marginata, D. fragrans, D. marginata, and yucca are among the most widely exported sources of cane in Mexico. Most of this cane is brokered into the U.S., but some is sold into Europe as well. APHIS-PPQ tightly regulates the size of cane which can be brought into the U.S.. Under these regulations length is limited to 5 feet or less.

Nursery Production in Mexico

The proposed free trade agreement has created a great deal of market speculation among U.S. producers. Most of this has focused on the impact of imports coming into the U.S.. However, a basic understanding of the differences and similarities between how we do business will help identify areas where cooperation can be mutually beneficial.

Few areas of concentrated production exist in Mexico. Most growers located near metropolitan areas tend to take advantage of the market. Mexico City boasts the largest number of operations, with a grower's association that sponsors educational seminars regularly. Occasionally a cluster of 4-5 producers can also be found in rural areas. These usually develop into successful operations and are copied by area farmers. Even a small vivero or nursery can provide an excellent source of income compared to traditional farming enterprises. However, investment costs are high and many people simply can't afford to go into business.

The scale of most operations in Mexico does not compare with that of the U.S.. The average growing area is less than one hectare (22.5 acres) making them relatively small by U.S. standards. One vivero may carry 30-40 items in 2-3 sizes. Most sell both wholesale and retail through various local outlets.

Mexico has a very loosely defined market structure for floral and nursery products. Independent retail outlets or mass markets do not exist as they do in the U.S.. As a result, products do not move efficiently through marketing channels. In addition, there is little or no standardization in Mexico's floral and nursery industry. This has created significant problems in the areas of quality, pricing, and contracting.

Limited transportation systems and the lack of horticultural supplies are also major drawbacks for Mexican producers. Although items such as pots, growing media, fertilizers, pesticides, etc. are available, variety is limited and costs are very high. Additionally, moving plant material over land can be time consuming and post-harvest care is not a high priority. As a result, distribution channels are limited and products are not of similar quality to those produced in the U.S..

Excellent growing conditions are advantageous to the production of floral and nursery crops in Mexico. Temperatures range from tropical throughout the central and southern regions of the country, to mild at the higher elevations. This variety allows growers to select the best location for specific crops.

Of course labor rates are much lower in Mexico than they are here in the U.S.. Typically a day laborer will earn from $3.00 - $5.00 per day. Employers are also required to pay some hospitalization overhead for full-time employees. This usually amounts to around $50.00 per person, per year. Also, while labor rates are lower in Mexico, labor is frequently less productive due to restrictive work rules and other factors. Consequently, total labor costs per crop in Mexico are frequently not as low as wage rates suggest. Regardless, the lack of parity between U.S. and Mexican labor costs is one of the major issues to be addressed in the FTA.

Priority Issues to Monitor During Negotiations

Before a bilateral trade agreement is reached between the United States and Mexico several key issues related to the trade of greenhouse and nursery products must be addressed. Some issues are not specific to these products, but have important implications for the U.S. greenhouse and nursery industry.

Issue 1: Imbalance of Trade

Currently, Mexico is a net exporter of greenhouse and nursery products. Horticultural products in general represent one-third of Mexico's agricultural exports, of which 90% goes to the United States. In general, the value of Mexico's exports of horticultural products to the U.S. is about 45 times greater than the value of its imports from the U.S. An FTA which includes provisions designed to minimize any worsening of the imbalance would be in the best interests of U.S. greenhouse and nursery producers.

Issue 2: Accurate Market Information.

Mexican producers who currently export horticultural products into the U.S. have access to valuable U.S. market information regarding production, shipments, prices, etc. However, little if any timely information on Mexican markets is available to support U.S. producers interested in shipping products to Mexico.

If a free trade agreement with Mexico opens export opportunities for U.S. producers, the quality, timeliness, and scope of information available on Mexican markets will have to increase dramatically if the opportunities are to be fully realized. Monitoring Mexican compliance with all free trade agreement provisions will also require reliable, timely data on Mexican markets for a wide variety of products. Consequently, negotiations on free trade with Mexico will need to emphasize improved U.S. access to available Mexican market information, enhanced and more reliable data collection and reporting in Mexico, and coordination of U.S. Department of Agriculture and SARH (Mexico's Agricultural Department) market situation and analysis activities.

Issue 3: Indirect Subsidies in Mexico

Nursery producers in Mexico do not receive direct price subsidies but have been aided by government investment in irrigation facilities, subsidized interest rates, subsidies for energy and fertilizer, and exemption from export taxes. U.S. producers of horticultural products do not generally receive similar assistance. In order that a free trade agreement not provide Mexican producers with an unfair advantage, such indirect subsidies would need to be phased out along with any trade barriers.

Issue 4: Harmonization of Regulations

The free trade agreement must also address restrictions such as pesticide/chemical use and residue requirements, phytosanitary requirements, minimum wage laws, Social Security, workman's compensation costs, the Migrant and Seasonal Farm Worker Protection Act, housing and field sanitary regulations, occupational safety and health regulations, child labor laws, the 1986 Immigration Reform and Control Act, motor carrier safety laws, the Hazardous Communication Act, and various state and federal discrimination and Human Rights Acts. U.S. producers undergo considerable cost in complying with these regulations whereas Mexican counterparts do not at present. If these issues are not satisfactorily dealt with in an FTA with Mexico, U.S. producers would be at an unfair disadvantage relative to Mexican producers.

Issue 5: Consistency with GATT

The GATT allows a country to give preferential treatment to another country or countries in a free trade agreement as long as: (1) duties and other restrictions on most trade among the members of the agreement are removed and (2) duties and other restrictions placed against non-agreement countries on the whole are not higher or more restrictive than pre-agreement levels.

Issue 6: Mexican Infrastructure

Opportunity for improved access to major Mexican markets for U.S. producers may be enhanced by an FTA. The current communication and transportation systems in Mexico, however, are probably not sufficiently developed to handle large increases in U.S. exports to these markets. Consequently, any growth in U.S. exports in the short run would be concentrated in less perishable greenhouse and nursery products.

Issue 7: Labor

U.S. labor groups are among the strongest opponents of a free trade agreement. Their position is that low-cost imports from Mexico would lead to job losses in the U.S. and that differences in labor costs, standards, and safety and environmental regulations would give unfair advantages to Mexican producers. Successful completion of a U.S.-Mexico FTA would likely need to address and overcome major labor concerns even if labor issues are not formally included in the negotiations.

Issue 8: Competitiveness

In general, Mexican costs of production are estimated to be 60% to 80% of U.S. production costs. In addition, Mexican production of spring and fall nursery crops often coincides with domestic U.S. production. These factors favor Mexican producers, but the U.S. generally has greater water resources, a better transportation and communications infrastructure, and a more diversified climate and assortment of greenhouse and nursery products. Consequently, the Mexican cost advantage in production is likely reduced substantially in marketing nursery products in the U.S.. Foreign investment in the Mexican industry has narrowed the technological gap between the two countries.

The U.S. and Mexico are continuing to draw closer culturally, politically and economically. As we become a part of the global greenhouse and nursery industry our relationship with Mexico will be increasingly important. The free trade negotiations will largely determine the extent of cooperation and the future of our two industries.

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