Last week the WTO completed its biennial review of U.S. trade policies. The Trade Policy Review report completed a month before the public session by economists in the WTO Secretariat's Trade Policy Review Division provides an informed view of U.S. trade policy. The opening sentence of the overview of the report stated, “The U.S. trade and investment regimes are among the most open in the world, and have remained so throughout the period under review.”

 

The Trade Policy Review Mechanism was established under GATT in December 1988 and became permanent with the entry into force of the WTO in 1995. All members undergo policy reviews, with the four members with the largest shares of world trade (currently the EU, the U.S., Japan and China) reviewed every two years, the next 16 every four years, and all others every six years. The country under review prepares a policy statement released to members along with the Secretariat’s report. The WTO General Council meets as the Trade Policy Review Body.

Much has changed in WTO members’ economies since the last U.S. review in June of 2008 and the overview noted that the U.S. “largely resisted pressures to respond to the global economic recession by tightening restrictions on imports.” The simple average applied Most Favored Nation tariff of 4.8 percent is the same as when the economic slowdown began in late 2007. The anti-recession U.S. measures noted include favoring domestic suppliers of goods and services to a greater degree than under the Buy American Act of 1933 and auto company assistance.

Fifteen pages of the 151 page report were devoted to U.S. agricultural policy and trade, about as expected. With discussions already beginning on the 2012 farm bill, what is said and not said in those pages are important to consider as possible policy changes are discussed. After explaining the importance of U.S. production and trade the report notes, “Because the United States accounts for a significant share of the global market for a number of agriculture products, the measures it takes that support production and trade can affect world prices and, thus, international trade.” U.S. policy will continue to receive close attention.

The description of the 2008 farm bill revealed a couple of key points. The writers noted that for cotton the repayment rate for marketing loans is based on world market prices rather than U.S. prices. Counter-cyclical payments are based on market prices, but that no production of the covered crop or any other crop is required to receive payments. Cotton also received attention concerning Economic Adjustment Assistance Program payments to domestic users of upland cotton for specified activities, including modernizing plants or equipment, and that domestic users and exporters of extra long staple cotton receive payments when world market prices for four consecutive weeks are below U.S. prices and below 134% of the marketing loan rate.

One-fourth of the section on agriculture was devoted to payments to farmers. The report’s authors describe the 2008 farm bill as not a radical departure from the 2002 one. For the 2007 crop year the U.S. had reported to the WTO total support for agriculture of $84.7 billion. Green Box programs (non-trade distorting) totalled $76.2 billion, with $54.4 billion in domestic food aid and $5.2 billion for direct payments to farmers under decoupled support. The total Aggregate Measure of Support (AMS) for 2007 was $6.3 billion. Another $2.0 billion was in non-product specific support. The report notes that Amber Box support (trade distorting) was a small part of support notified to the WTO. The authors explain, “Apart from upland cotton, there have been essentially no marketing loan payments since 2005 because market prices have been greater than the Farm Bill loan rates.” The report notes that of the $135.5 billion of USDA spending for FY 2010, not all of which is farm bill related spending, $93.9 billion was allocated to human nutrition programs.

Tariffs are not included in the farm bill, but are important trade policy instruments. According to the report, the U.S. has 1,791 agricultural tariff lines at the 8-digit national level, with 1,595 out of quota tariff lines. The average tariff for these lines is 8.9 percent, described as “relatively low compared with some other WTO members.” Zero tariffs are applied to 368 lines, 696 lines have non-ad valorem tariffs and tariffs go as high as 350 percent. The highest tariffs are on tobacco, sugar, peanuts, and dairy products. The U.S. has 44 tariff rate quotas covering 171 tariff lines. The U.S. has reserved the right to use Special Agricultural Safeguards on 189 tariff lines. No quantity-based safe guards have been used since 2003, but price-based safeguards were used in 61 times in 2007 and 53 times in 2008.

Dairy policy had analysis about CCC purchases of products, Federal Milk Marketing Orders, the Milk Income Loss Contract Program and the Dairy Export Incentive Program. The GSM 102 Export Credit Guarantee Program used for most products was mentioned in a generally favourable light. The Federal Crop Insurance program that is privately run but receives federal government subsidies was mentioned only briefly. Country-of-origin labelling (COOL) was mentioned only in passing, even though Canada has already filed a WTO case against the U.S.

Food aid received analysis with the fact that the U.S. supplies about half the world’s food aid each year, but does most of it with direct transfers. Other countries provide cash for local or regional purchases as a more efficient transfer. The 2008 farm bill did provide a yearly pilot program with $25 million for FY 2011. The Administration secured for FY 2010 a $300 million International Disaster Assistance account for cash assistance and has asked for the same amount in FY 2011.
The report should be viewed as positive for U.S. agriculture. Because of the size of U.S. agriculture and its importance in trade, extra scrutiny in a WTO policy review is to be expected. The income support programs look good because market prices have been above loan rates and reduced price contingent payments. That is not likely to change in the 2012 farm bill. The average agricultural tariff of 8.9 percent is almost double the average of all U.S. tariffs, but relatively low compared to other developed countries. Improvements can and should be made, but U.S. agricultural production and trade policies are better than most other countries in the WTO.