Ag Policy, Lecture 5 Knutson, 6 th Edition Chapters 4, & 6 Agricultural Trade Issues and Policies Relationships Trade Issues Geopolitical Centers of Influence

International Policy Live in a global economy where: –Interdependence of policies –Global Agriculture Markets –Few commodities are isolated through barriers to trade (successful only in varying degrees)

US Trade Policy Complexity Trade Policy does NOT exist in Isolation –A component of Foreign Policy –Intertwined in Domestic/Economic Policy –Intertwined in Ag & Food Policy

US Trade Policy Complexity President –Council of Economic Advisors –Secretary of State −National Security Advisor Several Congressional Committees −Foreign Relations −Ways and Means −Finance −Defense −Agriculture Several government agencies −State −Defense −Treasury −NSC −CEA −OMB −USDA

Fast Track-Trade Promotion Authority (TPA) Gives President authority to negotiate trade agreements with approval of the Congress but without modification by the Congress −Constitutional requirement that Congress approves all agreements (treaties) with foreign governments −TPA necessary to achieve serious negotiations by a foreign government −TPA given reluctantly by the Congress, particularly when power is given to the opposite party as was the case in the Clinton years −Given to President Bush in 2002 for 5 years

US Trade Policy Issues Food Diplomacy Increased Market Access Building Markets Developing Market Economies Increasing Food Security Protectionist Policies

Food Diplomacy Positive Punitive

Market Access Why do we want market access? Why would we refuse others access? Access is gained by reducing barriers to trade Bilateral & Multilateral Trade Agreements –Free-trade Agreements –Customs Unions Common policy toward non-members –Common Markets Free movement of factors of production Alignment of major economic & agricultural policies –Economic Unions Unified social/economic policies

Building Foreign Markets USDA Foreign Ag Service and Producer Checkoff partnership in promotion –Education –Demonstration –Formerly Mass Media Advertisement Market Intelligence Export Credit and Enhancement –Cash or Commodity Subsidies –Credit Guarantees (USDA General Sales Manager)

Building Market Economies Typically Mingled with Multiple Objectives for Developing Economies Partnerships with UN, World Bank, Voluntary Organizations –Institution Building –Technical Assistance –Infrastructure Development –Applied Research

Food Security Global Food Availability Individual Food Security Food Safety

Protectionist Policies Barriers to Trade All Domestic Farm Policies Trade Remedy Laws –Anti-Dumping Provisions –Countervailing Duty (Tariff)

Geopolitical Centers of Influence Countries or groups (blocs) of countries that have (or could have a major impact on U.S. agriculture and agribusiness Some individual countries are in this position now, have been, or will be –Mexico –Canada –Japan –China –Russia Some are organized into blocs –NAFTA –EU –MERCOSUR/FTAA –Cairns group –APEC

Geopolitical Centers of Influence Then there are the developing countries –Largely ignored up to now –Want preferred access to developed country markets There are interest groups outside the countries and blocs that try to influence the world agenda –Greenpeace –UN/FAO

NAFTA (North American Free Trade Agreement) 3 Separate Agreements  Canada – US Trade Agreement (CUSTA) effective in 1989  Canada – Mexico Trade Agreement effective in 1994  US – Mexico Trade Agreement effective in 1994

NAFTA Trade  U.S Absolute (Comparative) Advantages Corn, Soybeans, (Poultry, Fed beef, Hogs)  Canada Absolute (Comparative) Advantage (Wheat, Oats, Barley, Canola, Flax, Fed Beef)  Mexico Absolute (Comparative) Advantage  Vegetables, (sugar)

NAFTA Issues  Countries maintain separate domestic farm policies  U.S. – Price/Income Support to Farmers, Conservation  Canada – State Trading (CWB), Production Controls, Conservation, NISA  Mexico -- Direct Support, Price Supports  Dispute Settlement, 5 member panel of judges

MERCOSUR Argentina, Brazil, Paraguay, and Uruguay  Established in 1991  Competitive in Corn, Soybean, Beef, and Orange Juice Production  U.S. has lost some beef markets because of the freer trade within MERCOSUR  Strong Advocate for Eliminating Subsidies  Opportunities Expand to include Bolivia, Chile, Peru, Ecuador, Colombia, Venezuela Potentially a part of FTAA  Problems Political and Economic Instability

Cairns Group Established in 1986 in Cairns, Australia –18 southern hemisphere countries –Major members include Australia, New Zealand, Brazil, Argentina, Chili, Thailand, Canada All export dependent Wheat, rice, coffee, beef, dairy, soybeans Ag policies –Works largely through WTO –Seeks removal of barriers to trade –Seeks elimination of ag subsidies (Critics of U.S. and EU) –Members not free of ag policies that impede trade

APEC Asian Pacific Economic Cooperation, –21 countries that border Pacific Ocean –Highly diverse membership including: U.S., Japan, China, Russia, Mexico, Chile, Australia, New Zealand, Vietnam, Thailand –Accounts for 60% of World GDP Accounts for 60% of U.S. ag exports Accounts for 50% U.S. of imports Objectives –Free trade among developed country members by 2010 –Free trade throughout by 2020

Japan 125 M people Ag –40% self-sufficient on food needs –Income increases encourages dietary change Ag Policy –Conversion from rice to F&V –“Control” dietary change through Japan Food Agency purchases in international market. –3 rd largest US customer but Australia and New Zealand has location advantage. –Strong Protectionist Stance

China 1.3 Billion people Ag –Essentially self-sufficient –Undergoing substantial dietary change Ag Policy –State dominated –Transition to market economy –Entry into WTO

Russia 145 M people Ag –Grain, sugar beets, rapeseed/canola, beef, milk –Net importer (major market for U.S. meat) Ag Policy –Slow conversion to market economy –Privatization of land –State control of imports

Developing Countries 67 Countries (40% of world population) Low-Income (< $2000 per capita) Net-Importers (dependent on food aid) Mostly trade with developed countries Policies Center Around Increased Income –Expansion of Exports –Difficult to establish export markets –Reluctant to allow imports

EU Common Agricultural Policy (CAP) EU History –1957 Treaty of Rome formed European Economic Community Customs Union: No internal barrier to trade among members; common external tariff; Free movement of labor and capital –1992 Maastricht Treaty formed European Union to establish common currency –1999 European Monetary Union (Adoption of the Euro)

EU Common Agricultural Policy (CAP) cont. 25 Members Original Treaty of Rome Included: –France –Germany –Italy –Belgium –Netherlands –Luxembourg

EU Common Agricultural Policy (CAP) cont. Governance –Council of the European Union Decision body with heads of state for each country (like Senate) –European Parliament Legislature body with 626 members appointed by population (like House) –European Commission Executive branch implements policy Commission on Agriculture manages CAP –Court of Justice Dispute settlement body

EU Value of Ag Production and Processing ($B) USEU 15 Ag Production Processed Products364784

Dimensions of the EU’s Common Agricultural Policy TRQ to prevent imports Price Supports –Intervention price (EU purchase for storage) Direct Payments –Related to historical yield and current acres –Payment per head for livestock Production Controls –Set aside percent of cropland –Marketing/production quotas in dairy Export subsidy to prevent stocks in storage from becoming excessive

Dimensions of the EU’s Common Agricultural Policy Multifunctional Payments –Noncommodity outputs that are jointly produced by agriculture  Countryside benefits of farming –Notion that agriculture can become too intensive and farmers need to be compensated for making it less intensive  Organic Farming Sanitary & Phytosanitary Standards –Import restrictions on hormone treated beef –Import restrictions on GMOs

Why Expand? EU –Political influence –Security –Globalization –Trade

Complexity of Trade Policy Trade Development Issues Geopolitical Centers of Influence Next Class –WTO (Chapter 5) Lecture 5, Wrap up