AGEC 429: AGRICULTURAL POLICY

LECTURE 22: U.S. AGRICULTURAL TRADE POLICY

Free Trade: Long-time stated goal of U.S. agricultural policy- World trade in agricultural goods free of any government intervention.- In practice, U.S. favors free trade more in our export markets than in our

import markets.- Why do you think that has been the case?

AGEC 429 Lecture #22

U.S. AGRICULTURAL TRADE POLICY

Many groups within the U.S. oppose the policy of free trade. - Why is that the case?- What groups are likely to oppose free trade?

» Groups that LOSE from free trade will tendto oppose opening markets to trade.

» What groups tend to lose from trade? - What groups are likely to favor free trade?

» Groups that GAIN from free trade will tendto favor opening markets to trade.

» What groups tend to gain?

_________ in import markets_________ in export markets

_________ in export markets_________ in import markets

Who Gains and Loses from Free Trade?

9

10

21

9 4

11

36

Livestock & prod Grains & feeds Fruits & vegsCoffe & cooca Sugar Alcoholic beveragesOther

• Producers in import markets _______- Free trade means these producers must compete

with imports which reduces their production and profitability.

• What about consumers? Do they benefit from free trade?- Answer: It depends!- Consumers in export markets _____ while those in import markets _____.

• Producers in export markets ______- Free, open, growing global markets provide access

to large consuming populations outside the country.- U.S. or foreign policies that restrict our exports

reduce our production and producer profitability.

Globalization and Economic Integration• World has become increasingly interdependent in recent years

- Changes in markets in one country affect marketsin other countries

- Rapid improvements in transportation and communication technology, among other things.

- The increasing economic interdependence among countries is called globalization.

• Globalization is forcing greater integration among countries- Creates challenge for U.S. policymakers in managing the type and extent

of integration that the U.S. desires with other countries.- Trade policy used to manage the economic integration process.

Three key types of integration occurring in world markets:(1) Economic systems integration(2) Market integration(3) Policy integration

Globalization and Integration

Market Integration: The ________________ among countries.- Markets in trading countries behave as single market rather than as

many separate markets.- Market integration occurs in commodity markets but also in

financial and resource markets if there are no barriers to free flowof financial commodities or resources.

Policy Integration: ____________________________________________________ among countries- Market regulations and policies must be adjusted to keep

commodities flowing freely among countries.- Without policy integration, market distortions will occur.- Inconsistent policies among trading countries generate

pressures for change.

Three Types of Integration Economic Systems Integration: The ________________

to commercial interaction among countries.- Forces closer coordination of economic systems among

countries (economic and macroeconomic policies).- Continual economic systems integration eventually leads to

adoption of same currencies and monetary systems, freemovement of resources (capital and labor) across borders.

U.S. Agricultural Trade PolicyGoals and Objectives

General stated goals have been to promotefree trade and economic integration betweenthe U.S. and its trading partners.

Four specific objectives of U.S. agricultural trade policy:

(1) Expand market access for U.S. agricultural commodities.

(2) Build markets for U.S. agricultural commodities.

(3) Assist countries in their economic development.

(4) Increase U.S. and world food security.

Objective #1: Expand Market Access

Overriding goal of U.S. agricultural trade policy

Negotiating agreements to reduce trade barriers with trading partners- Primary means of gaining greater access to foreign

markets for U.S. agricultural and food commodities

U.S. Trade Policy Goals and Objectives

Three types of negotiation strategies- __________ trade negotiations to establish free trade

agreements between two countries to reduce trade barriers (examples: U.S.- Israel, U.S.- Chile, U.S.- Canada)

- ________ trade negotiations to establish free trade agreement among countries in a geographic region to reduce trade barriers examples: NAFTA, MERCOSUR, European Union)

- ______________ trade negotiations to establish free tradeagreements among a large number of countries across geographic regions to reduce trade barriers (Example: WTO)

Many rounds of multilateral trade negotiations have occurred:1947 Geneva 1960-62 Dillon Round1949 Annecy 1963-67 Kennedy Round1950-51 Torquay 1973-79 Tokyo Round1955-56 Geneva 1986-94 Uruguay Round

Agriculture Played Central Role in _________Round Negotiations- Completely new operational rules for agriculture agreed upon.

- Three major areas (pillars) of negotiation and agreement:1. Market Access2. Export Competition3. Domestic Subsidies

U.S. Trade Policy Goals and Objectives

The ____________ Round (signed in 1994)- Most important round for agriculture. - First time that reductions in agricultural trade barriers

were negotiated.- Negotiations lasted 8 years (1986-1994)- Signed by 111 countries with others signing later

Pillars ofNegotiation

Rules Liberalization Safeguards,

Accommodations and Guarantees

MarketAccess

• changed non-tariff trade measures (like quotas) to tariffs (“tarrification”)

• bind all tariffs (noincreases allowed)

• reduced existing and new tariffs- by 36% on ave. over 6 yrs

• reduce tariffs for each item by 15%

• guaranteed access opportunities for exporters through tariff-rate quotas

• special safeguard measures for importers

ExportCompetition

• defined limits on existing export subsidies

• no new export subsidies

• reduce expenditures by 36% over 6 years

• reduce volume by 21% over 6 years

• adherence to foodaid rules

• negotiate later on export credits

DomesticSubsidies

• defined “trade-distorting” and “non-trade-distorting” policies

• aggregate level of “trade-distorting”support reduced- by 20% over 6 years

• many developing countries subsidies exempted

• payments under production limiting

programs exempted

Summary of Uruguay Round ResultsU.S. Trade Policy Goals and Objectives = Need to know for exam

Trade distortinginclude “coupled”

policies

Non-tradedistorting include

“decoupled”policies

New Round of Trade Negotiations:“Doha Development Agenda”

New WTO negotiations on agriculture began in early 2001- Negotiators met in Doha, Qatar to begin consideration of negotiating proposals submitted

by 121 governments- Attempt to make additional progress in the three pillar areas of negotiation

• A lot of negotiating for 19 years but little progress:- Negotiations were to conclude by January 2005 but still ongoing- Negotiations suspended several times (April 2006, July 2008, Oct 2011)

• Will countries ever reach a final agreement?- After 19 years of negotiating, many countries giving up hope and looking to regional trade

agreements (RTAs) like NAFTA, MERCOSUR, the Transatlantic Trade and Investment Partnership (TTIP), Trans-Pacific Partnership (TPP), and many others.

• Where to now in WTO negotiations?- Main persistent differences include tariff reduction plans and domestic subsidies.- 10th ministerial meeting in Nairobi, Kenya (December 2015) agreed on

the “Nairobi Package” to abolish export subsidies among other things- 11th Ministerial Conference in Buenos Aires in December 2017- 12th Ministerial Conference in Kazakhstan in June 2020 cancelled due to COVID (2021?)

Objective #2: Build Markets for U.S. Agricultural Commodities

USDA Foreign Agricultural Service (FAS) administers three major programs to help build foreign markets:

(1) Market Development and Promotion Programs

(2) Foreign Market Information Program

(3) Export Credit and Enhancement Programs

U.S. Trade Policy Goals and Objectives

FAS Program #1: Market Development and Promotion Programs- Federal funds combined with producer check-off funds (voluntary or

mandatory producer contributions) to fund ______________________activities in foreign countries.

- Extensive overseas programs to persuade foreign consumers to prefer and buy U.S.- produced agricultural food products.

- Commodity groups include beef, pork, corn, soybeans, cotton, and others like blueberries, potatoes, citrus, dates, and many more

FAS career: https://www.youtube.com/watch?v=PBwBWpNcq-E&t=63s

Objective #2: Build Markets for U.S. Agricultural Commodities (cont’d)

FAS Program #2: Foreign Market Information Programs

- FAS has a world-wide market information program.- Agricultural counselors and attachés located in

American embassies identify potential U.S. agricultural ______________________________.

- They also gather intelligence on foreign agricultural m markets to provide timely information on markets like

where droughts are occurring, prices in foreign markets, technology used abroad, etc.) to help U.S. agriculture sector to effectively compete in world markets and help inform U.S. regulatory and policy-making officials.

- “Bad” or “old” information can lead to producer market decisions or U.S. policies that are inconsistent with the realities of world markets.

- Example: disease outbreak in some region of the world should lead to quick policy response to restrict food imports from that region.

U.S. Trade Policy Goals and Objectives

U.S. Trade Policy Goals and Objectives

Objective #2: Building Markets for U.S. Agricultural Commodities (cont’d)

FAS Program #3: Export Credit and Enhancement Programs- Administered by FAS- Programs offer purchasing credit or other inducements to generate

additional sales of U.S. agricultural commodities.- Main program is the Export Credit Guarantee Program:

USDA guarantees loans so that private U.S. financial institutions will extend financing to buyers in emerging markets that want to purchase U.S. agricultural exports. The 2008 farm bill made changes to export credit programs to conform to U.S. commitments in the World Trade Organization (WTO).

U.S. Trade Policy Goals and Objectives

Objective #3: Assist Countries in TheirEconomic Development Efforts

Key objective in U.S. efforts to build markets for U.S. goods. (Why?)

- Agricultural development activities help poor people feed themselves.

- As agriculture sectors become more productive, labor can then be transferred out of agriculture and employed in other economic activities, making the economy less dependent on agriculture.

- U.S. economic development followed this process. Also, Japan, South Korea, Taiwan and other formerly underdeveloped countries.

- Development brings increases in incomes and standards of living.

Increased income leads to increased ____________.

U.S. is major food exporting country so foreign economic development leads to ______________________and _____________________ of U.S. agricultural and food products.

Agriculture is typically the starting point for U.S. economic assistance to developing countries. (Why?)

Objective #3: Assisting Countries in TheirEconomic Development Efforts (cont’d)

Four General Categories of Economic Development Assistance:(1) ___________________- helping developing countries build governmental and private

institutions to support and administer an efficient agriculture and food system such as ministries of agriculture, land and property rights management, universities, extension services, producer marketing cooperatives, and much more.

(2) __________________________ - building transportation, energy, irrigation systems, storage facilities, etc. essential to the efficient functioning of agricultural markets and too expensive for developing countries alone to finance.

(3) ___________________ – providing services of experts from developed countries to assist in institution building and infrastructure development.

(4) ___________________ - research by U.S. and international agencies to find practical solutions to problems facing the agricultural sectors of developing countries. (Example: International Maize and Wheat Improvement Center (CIMMYT) in Mexico.)

U.S. Trade Policy Goals and Objectives

Objective #3: Assist Countries in TheirEconomic Development Efforts (cont’d)

U.S. Trade Policy Goals and Objectives

https://www.youtube.com/watch?v=p4uhSG6RYEE

Objective #4: Increasing U.S.and World Food Security

Three Dimensions of U.S. Efforts to Improve World Food Security:(1) ___________ - establishing policies to ensure the safety and integrity of the U.S.

and world food supply such as meat plant inspection systems, regulation and use of pesticides and other chemicals in food production, regulation of food additives, policies to limit importation of contaminated or diseased foods, etc.

(2) _______________ - food aid and foreign assistance programs to move food from surplus areas of the world (U.S.) to food deficit areas and to help foreign producers learn how to be more productive.

(3) ___________________ - programs to enhance access of poor to food, such as food stamp program, the Women, Infant, and Children (WIC) program, and the school lunch program.

Food Security Problems Most Prevalent in _______ and Parts of _____ and ___________________.- U.S. is world’s largest supplier of food aid, though PL480 (Food for Peace) program.- Free trade policy considered to enhance global food security by allowing for greater

food production, lower food prices for food, and greater access to food by lower-income consumers.

U.S. Trade Policy Goals and Objectives

Objective #4: Increasing U.S. and World Food SecurityU.S. Trade Policy Goals and Objectives

What About Trade Policies Related to Imports?

Free trade in import markets leads to increased imports of food which reduces U.S. agricultural production.

______________ Policies- Trade policies to limit imports (eg.: tariffs on Mexican tomato imports)- Polices for domestic purposes that limit imports (e.g.: COOL)- Trade Remedy Laws (TRLs) intended to provide “temporary” safeguards against

injurious imports established in Trade Act of 1974 and in U.S. Farm Bills.

Two Most Prominent _________ (Trade Act of 1974):- ____________ - provides temporary protection against imports

to facilitate adjustments to a loss of international competitive-ness. To justify need for temporary protection, only serious injury or the threat of serious injury must be demonstrated by the industry. President empowered to impose a tariff (called Countervailing Duty or CVD) to provide protection against imports.

- ___________ - prohibits unfair trade practices which most commonly is “dumping.” Dumping is when one country sells its goods in another country at a price below the cost of production. CVDs or other regulatory measures can be imposed.