030101 USA, Mexico Close to Tariff Deal on Chicken

Mexico City - The U.S. and Mexico are working to head off growing complaints in Mexico that the North American Free Trade Agreement is hurting that country's farm sector, the Wall Street Journal reported.

The two nations are close to an agreement that will extend protection of Mexico's $2 billion chicken industry for another five years, industry and trade officials from both countries say. A deal is expected within weeks.

As Nafta reaches a major milestone on Jan. 1, when tariffs on some 80 agricultural products are eliminated, peasant groups in Mexico have vowed to block ports and customs offices within days if the government doesn't give the farm sector fresh aid in addition to $1 billion of recently unveiled subsidies.

Mexico's media have warned of a catastrophe in the countryside when trade protection ends in the new year. Mexico's farm lobby has hyped much of the controversy, despite the fact that for most products, such as sorghum and potatoes, trade is already practically free of barriers: Tariffs on those products and most others will disappear from only around 1%.

But the country's chicken industry -- the world's sixth largest -- may well be more vulnerable. Mexican tariffs on chicken are slated to fall to zero from 49% overnight. And the tariffs already have fallen sharply - - from 99% last year. There are other reasons to worry about the nearly one million Mexicans who work in the poultry industry, too. Because U.S. consumers prefer breast meat and pay a premium for it, U.S. chicken producers export legs and thighs -- which Mexican consumers favor -- at prices that sometimes are half what Mexican producers charge for them. Even with the tariff at 49% this year, U.S. producers sold about $130 million of chicken parts to Mexico, according to U.S. producers.

A deal between the U.S. and Mexico likely would raise tariffs on chicken parts such as legs back to 2001 levels of 99% for 2003, according to U.S. producers. Tariffs then would drop an average of 20 percentage points a year for five years until they reach zero. In return, Mexico would have to give up an equal amount of trade protection in other parts of the poultry trade, by lifting quotas on whole chickens or turkeys, for instance.

U.S. producers say they are being pragmatic given what they say is an increase in Mexico's non-tariff trade barriers for incoming chicken parts in recent months, including new disease-testing requirements and a jump in random inspections at customs.

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