One of the most challenging aspects of public policy is staying focused on issues that continue on year after year. Most people want to tackle an issue, get it resolved and move on to another project. Trade policy and trade negotiations do not operate that way. The complexity of the issues and the numerous parties involved cause the process to stretch on for years.
The Uruguay Round trade agreement was completed in 1994 after seven and half years of negotiations and took affect on January 1, 1995 with the creation of the World Trade Organization. Further negotiations in the WTO on agricultural issues started in 2000. The Doha round of talks officially began in November 2001 with an expected completion date of January 1, 2005, which has now been pushed back to December 2006. The slow movement of the WTO talks allowed bilateral trade agreements to take center stage. Since 2000, Congress has passed six bilateral agreements, including the hotly contested DR-CAFTA. Over a half dozen other agreements are in various stages of development.
All of this policy activity has occurred at a time when the U.S. agricultural trade balance has declined from record highs of over $20 billion per year in fiscal years 1995-97, to $10-15 billion per year in recent years, and to an estimate of $4.5 billion for fiscal year 2005 that just ended and $2.5 billion for fiscal year 2006 that began on October 1. Trade disputes continue, including new ones such as beef trade with Japan and more long standing issues of Canadian wheat and beef hormones with Europe.
Fatigue often sets in when the negatives of a situation become so numerous that the positive points are forgotten. There are reasons to keep slogging through the negatives of trade policy to continue to gain the positives of increased trade in U.S. agricultural products.
First of all, exports markets are a fact of life for the major U.S. crops. According to the September 2005 estimates for the new crop year from USDA’s World Agricultural Outlook Board, exports will account for 69 percent of U.S. cotton production, 53 percent for rice, 47 percent for soybeans and soybean products, 45 percent for wheat and 19 percent for corn. The export percentages on a volume basis for the major meats are lower, but still substantial with broilers at 15 percent and pork at 13 percent. Beef exports on a volume basis were about 10 percent of production before many markets were closed because of BSE. While every commodity has had some trade policy disputes, most agricultural trade moves with little or no problem.
Second, while the U.S. has almost 300 million people and another 135 million people live in Canada and Mexico, over 93 percent of the world’s population lives outside the three NAFTA countries. While the majority of the world’s population will not be buyers of U.S. agricultural products, the existing middle classes in Western Europe and Japan are already larger than the NAFTA middle classes. The rapidly growing middle classes in countries throughout Asia will soon outgrow the established middle classes in the developed world. If U.S. producers are going to tap into these growing middle class markets, market access issues of tariffs and sanitary regulations must be addressed.
Third, if markets in other countries were as open as U.S. markets, we would not have to be as worried about negotiating new agreements. While bound U.S. agricultural tariffs average 12 percent, the average bound agricultural tariff for all WTO countries is 62 percent. These tariffs compare with a world average bound tariff of 4 percent on industrial goods. Some of the highest tariffs and other market access barriers for agricultural products are in countries with an expanding middle class. India for example has average bound tariffs of 114 percent. The opportunities for lower tariffs are huge.
While tariff and sanitary issues are easier to see, supply chain access issues and phyto-sanitary issues often can only be resolved through negotiation of either new multi-lateral or bi-lateral agreements. These problems will not disappear by themselves. We have no choice but to negotiate these complex issues to get market access to middle class consumers in other countries.
Fourth, as the Brazilian cases against U.S. cotton and EU sugar have shown, existing developed country farm programs are not immune to challenges under current WTO rules. U.S. rice and soybean programs have been suggested as targets by groups in Brazil if there is no progress in the WTO negotiations. Canadian corn producers have pointed to the Brazil cotton case as a reason for their government to take a stronger stand on U.S. farm policies. The EU believes that the new Single Farm Payment system that began this year will shield it from further WTO challenges. U.S. programs will continue to be the major target for cases under existing WTO rules.
Fifth, negotiations are usually a better approach than litigation in addressing disputes under existing trade agreements. As former President of the U.S. Jimmy Carter once stated, “Unless both sides win, no agreement can be permanent.” Winning a point in a dispute settlement under existing trade agreements seldom leads to improved long-lasting trade relations.
Despite the reality of trade agreement fatigue, U.S. farmers and ranchers, other participants in the food supply chain and the Bush Administration have no choice but to push ahead with a proactive agenda in the WTO negotiations and other bilateral efforts. Other major importing and exporting countries see the current WTO talks as an opportunity to shape the rules to their advantage. That has to be offset by U.S. efforts to push for more effective market access to reach the growing middle classes around the world.