How Farm Policy Undermines Free Trade
A quarter to a third of total farm receipts are obtained from overseas sales, with agricultural exports reaching $97 billion in 2009. The trade title of the Farm Bill deals with some matters of trade policy but is limited to unilateral actions such as food aid and export credits. This paper examines how to make trade policy and farm policy more coherent. Some of the highlights include:
1) Trade agreements set parameters for market expansion: With the development of the World Trade Organization (WTO), farm and food exporters in the United States have significantly benefited from many improvements, including provisions on domestic subsidy programs. Domestic subsidy programs have reduced trade-distorting support in a number of developed countries, most notably countries in the European Union and Japan.
2) The Dispute Settlement Understanding has been actively used by and against the United States: The United States initiated 22 percent of the agricultural complaints brought to the WTO between 1995 and 2008. The United States has challenged the European Union, Japan, Korea, and Canada on various agricultural issues. Brazil has challenged the United States on cotton, Canada on trade-distorting support, and Canada and Mexico on country-of-origin labeling. The emergence of US ethanol and biodiesel policies could generate new trade conflicts in the future, as they affect global commodity prices.
3) Bilateral trade agreements have benefited US agriculture and will continue to do so: Of the three bilateral agreements under consideration, Korea and Colombia are broadly supported by the US agricultural sector. The Korea agreement would provide access to the Korean beef market and duty-free treatment for most other products. The Colombia agreement has the potential to expand US farm exports and create a level playing field with Brazil and Argentina. Ratification of these agreements would give a sign of credibility to an emerging trade strategy.
4) Title III of the Farm Bill should modify food aid and export credit programs: “Surplus disposal” should be replaced by a combination of targeted rapid response to emergencies and allowing developing countries to determine the appropriate use of food aid dollars. The 2008 Farm Bill includes a system for local procurement of food aid, which should be expanded in the 2012 Farm Bill.
The most obvious impediment to trade talks from a farm policy standpoint is the reluctance to reform sugar and cotton policy as required by the WTO. This reluctance weakens the US position in trade negotiations. Legislation should ensure that US policy is consistent with obligations in trade agreements.