The latest WTO Trade Policy Review of U.S. trade policy provides an informed outsider’s view of U.S. trade policy. The general conclusions are that the U.S. has one of the world’s most open economies, but market access restrictions and subsidies remain in important areas, including agriculture.

The Trade Policy Review process was first established on an interim basis in 1988 and became permanent in the Uruguay Round Agreement that created the WTO effective January 1, 2005. It is essentially a peer review in which a member’s trade and related policies are examined and evaluated at regular intervals. The four largest trading members (now the U.S., EU, Japan and Canada) are reviewed every two years, the next 16 are reviewed every four years and the remaining countries every six years with least developed countries allowed the option of a longer period between reviews. A policy statement is written by the member under review, and a detailed report is prepared independently by the WTO Secretariat. These two documents are then discussed by the WTO’s full membership in the Trade Policy Review Body. Members also submit written questions to which the member under review provides written answers that become part of the record. The U.S. received 600 questions from other members. China is up for review in April of this year, its first since joining the WTO in 2001.

The WTO Secretariat’s report gives a good overview of how trade policy analysts from outside the U.S. look at our trade policies. The Summary Observations note that “the U.S. is the world’s largest import market” and “continues to pursue a policy of advancing open markets and the rule of law.” The U.S. “places the multilateral trading system at the core of its international trade relations.” Concerns are raised that pursuit of bilateral and regional free trade agreements distracts from the multilateral system and complicates multilateral negotiations. The analysis was completed in late 2005 before the recent debate about security at the nation’s ports. Those issues were raised in the written questions and in press briefings.

Agricultural trade issues took 10 pages in the Secretariat’s report. Using USDA estimates, total government payments were reported at $13.1 billion and 16 percent of net farm income in calendar year 2004. This was down from 2000 payments of $22.9 billion and 48 percent of net farm income. The preliminary numbers for 2005 have payments increasing to $21.4 billion, 30 percent of net farm income. The report notes “an almost four-fold increase in counter-cyclical payments and a seven-fold increase in ad hoc emergency payments.” These comments are consistent with issues raised in the Doha Round negotiations that U.S. producers are shielded from income drops when market prices and/or production decline.

The report explains that the U.S. government “offers subsidized insurance against losses resulting from natural disasters and price fluctuations.” Premium subsidies were almost $2.5 billion in 2004, 60 percent of total premium costs, and “outlays rose by an average of nearly 14 percent per year between 1995 and 2003.” Crop insurance was a minor part of the Uruguay Round negotiations, but has become part of the overall perception that U.S. programs shield producers from yield and price variations.

The U.S. has not reported to the WTO the cost of domestic support programs since the 2001 marketing year, which was prior to the implementation of the 2002 farm bill. The report notes that under the 2002 farm bill “the Secretary of Agriculture must, ‘to the maximum extent practicable’, adjust expenditures if they exceed U.S. commitments to the WTO.” Without a report to the WTO there is no way to judge U.S. compliance with its WTO commitments and the 2002 farm bill provision. The report states that the Producer Support Estimates by the Organization for Economic Cooperation and Development (OECD) for 2003 show U.S. supports at 15 percent of gross farm receipts compared to the average of 30 percent for all OECD countries. The report quotes an OECD analysis that “the most production and trade distorting forms of support are still significant.”

The report is generally positive about the U.S. response to the outcome of Brazil’s case against the U.S. on cotton. The Administration’s decision to call for an end to the Step 2 program and actions by Congress are reported. Changes in the CCC export credit programs are also explained.

The report states that the U.S. provided 56 percent of global food aid on a volume basis in 2004 at a total value of $1.1 billion. Several WTO members have raised concerns about monetization, the selling of food aid in the recipient country with the money used in the country. The report notes that U.S. food aid policy seeks to minimize disruption to local commodity markets and that monetized food aid must be sold at “reasonable local market prices.” For fiscal years 1999 and 2000, the latest data available to the WTO Secretariat, about 30 percent of PL 480 commodities and 40 percent of Section 416(b) (surplus CCC commodities) were monetized.

While U.S. agricultural markets are among the most open in the world, the WTO Secretariat explains that the average U.S. applied MFN (Most Favored Nation) ad valorem tariff in 2004 for agricultural products was 9.7 percent, “almost two and a half times the protection afforded to the non-agricultural sector.” Almost 200 tariff lines are subject to tariff rate quotas.

With U.S. agricultural imports and exports at over $60 billion per year, a review of U.S. agricultural trade policy would be expected to have some areas of concern. The issues raised on agricultural imports are relatively narrow for the amount of trade. On the export side, payments to producers directly tied to production and/or yields are the biggest ongoing negative.