Trade Negotiations & U.S. Agriculture: Prospects & Issues for the Future Parr Rosson Professor & Director Center for North American Studies Department of Agricultural Economics Texas A&M University C NAS
Overview International Setting & Trade Strategy Role of Trade Agreements The World Trade Organization Negotiations in Doha Development Agenda DS 267, Cotton Case Conclusions & Implications
International Setting & Trade Strategy
World Population 8 Billions ME AFR LA TOTAL NA WE I. ASIA EE/FSU D. ASIA Ind. + 8%, Dev. + 31% 6,310 7,570 8 6 6 4 China, India, Indonesia 4 2 2 0 0 1990 2000 2001 F2005 F2010 F2015 F2020 US Census Bureau
4.6 4.5 4.4 4.3 4.2 4.1 4 4 3.9 Source: International Financial Statistics January 2005 and projections after 2004 are from Global Insight (formerly DRI-WEFA), FAPRI 2005 U.S. And World Agricultural Outlook. GDP Growth Projections % Change From Previous Year 7 6 5.6 4.9 5 4 3.2 3 2.5 2.5 2.5 2.4 2.4 2.4 2.4 2.4 2.3 2.4 2 1 Developed Countries Developing Countries 0 2004 2006 2008 2010 2012 2014
Source: International Financial Statistics January 2005 and projections after 2004 are from Global Insight (formerly DRI-WEFA), FAPRI 2005 U.S. And World Agricultural Outlook. Regional GDP Growth Projections 6 5 4 3 2 1 % Change From Previous Year Africa Asia Latin America Middle East China + 6.5% India + 5.4% 0 2004 2006 2008 2010 2012 2014
Regional GDP Growth Projections 8 % Change from Previous Year 6 4 CIS EU Other E. Europe 2 0 2004 2006 2008 2010 2012 2014 Source: International Financial Statistics January 2005 and projections after 2004 are from Global Insight (formerly DRI-WEFA), FAPRI 2005 U.S. And World Agricultural Outlook.
$80.0 $60.0 $40.0 $20.0 $0.0 U.S. Agricultural Trade, 1970-2005E Billion Dollars Exports Imports Balance -$20.0 -$40.0 -$60.0 1970 1975 1980 1985 1990 1995 2000 2005E Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade
U.S. Tariffs, 1789-2004 70 Percent 60 Tariff of Abominations, 1828 Smoot-Hawley Tariff, 1930 70 60 50 40 Morrill Act, 1861 Generalized System of Preferences, 1968 50 40 30 20 WTO, 1995 30 20 10 0 1789 1816 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Statistical Abstract of the United States Fordney-McCumber Tariff, 1922 GATT, 1947 10 0
Source: WTO & ERS/USDA World Average Agricultural Tariffs, 2002 Percent 140 120 114 Region Average World Average 100 85 80 60 40 20 55 40 30 25 62% 12 0
U.S. Trade Strategy Unilateral Generalized System of Preferences (GSP) CBI/CBERA African Growth Opportunities Act (AGOA) Regional/Bilateral NAFTA, CAFTA-DR, Others Multilateral World Trade Organization Concurrent Initiatives Only Forum Where All 148 Countries Are Present & Farm Policy Is Negotiated
Progress to Date
CUSTA, 89 CAFTA-DR Jordan 01 Bahrain 06? NAFTA 94 Israel 85 06? Morocco 06? Thailand 06? Andean FTA 06 Panama 06 MEFTA 06 FTAA 06 Singapore 03 Chile 04 Southern African Customs Union 06 U.S. Trade Agreements Australia 05
Trade Agreements In-Place (7) Israel-1985-1994 Canada-US (CUSTA)-1989-1998 North America (NAFTA)-1994-2008 US-Mexico US-Canada Canada-Mexico Jordan-December 17, 2001-2010 Chile-January 1, 2004-2015 Singapore-May 6 2003-2012 Australia-January 1, 2005-2022
Trade Agreements-Pending (9) Morocco-President Signed 8/17/04, Pending Signature, King of Morocco CAFTA-DR-Signed by President, Passed El Salvador, Guatemala, Honduras (20 Years) Bahrain-Pending Submission to Congress Panama-Nine Negotiating Sessions Held, Panama Delays Colombia, Ecuador, Peru (ANDEAN)- Nine Rounds, Negotiations Continue Thailand-Three Rounds Held
Trade Agreements-Pending (9) Southern African Customs Union (SACU): Botswana, Namibia, Lesotho, Swaziland, South Africa-Six Rounds Held Oman-Two Rounds of Negotiations Held, Part of Middle East Free Trade Area (MEFTA) United Arab Emirates-Two Rounds Held, part of MEFTA
Why Regional Agreements? 2d Best After MTN WTO Has Been Slower than Desired Outcome is Uncertain Economic Incentives Open Markets Increase Business Efficiency Keep Pressure on MTN to Perform Any One Agreement-Small Impact, Taken Together-Large Impact
Strategic Considerations Secure Key Strategic Materials Oil, Fertilizer, Natural Gas Stem Illegal Immigration by Creating Economic Opportunity in Other Countries Create Buffer Zone Against Terrorism (Thomas Barnett & 9/11 Commission Report)
Doha Development Agenda in the World Trade Organization (2001-? Preparing for the Hong Kong Ministerial December 8-13, 2005
Three Pillars of Trade Reform (Agreed in Concept August 1, 2004) Market Access: Reductions in Tariffs Export Competition: Elimination of Export Subsidies Trade Distorting Domestic Support: Reductions Over Time
Market Access Highest Tariffs Cut the Most U.S. Pushing for Deep Tariff Cuts by Developing Countries (60-75%) Issue: Many Developing Countries Want Special Treatment & Some Reluctant to Agree to Large Cuts Much Left To Be Negotiated & A Potential Deal Breaker
Export Competition Reduce & Eliminate Export Subsidies by Date Certain (Agreed) EU Export Subsidies, $2+ Billion/Year U.S. Export Credit Guarantees > 180 Days Food Aid to Be Disciplined Strong Support for Export Competition Reforms
Trade Distorting Domestic Support Programs that Cause Production to Be Different than Would Be Without Programs Year 1 Cut of 20% Subsequent Phased Reductions 40-50% Range Reductions from Allowable Support Issue: Developing Countries Wanted Cuts Now, Tariff Reductions Later If Big 3 Don t Make Substantial Cuts, A Deal Breaker
Agricultural Producer Support By Country 1986-88 and 2001-03 -Percent of Total Farm Receipts from Government- 80% 1986-1988 2001-2003 62% 60% 71% 65% 60% 40% 39% 40% 33% 26% 20% 20% 20% 12% 2% 0% New Zealand Canada United States EU Japan Korea Source: OECD's database (see www.oecd.org)
Total Allowable Trade Distorting Domestic Support, 'The Big 3, 2002 Billion $ $140 $120 $100 $128 Includes Amber + Blue Boxes, Product Specific + Non-product Specific De Minimis, Each Based on 5% of Total Value of Agricultural Production $80 $60 $49 $48 $40 $20 $0 European Union United States Japan WTO, Trade Policy Review and calculations.
Total Trade Distorting Domestic Support Remaining After Year 1 Down Payment (calculated) Billion $ $120.0 $100.2 $100.0 $80.0 $60.0 $39.2 $38.4 $40.0 $20.0 $0.0 European Union United States Japan
Total Trade Distorting Domestic Support Assuming 50 Percent Reduction $60.0 -Billion Dollars- $50.1 $50.0 $40.0 $30.0 $19.6 $19.2 $20.0 $10.0 $0.0 Calculated European Union United States Japan
Real Income Effects of Liberalization of Global Merchandise Trade, by Country, 2015 -Impacts in 2015 Relative to the Baseline (2001 dollars)- $350.0 $300.0 -Billion Dollars- $277.9 $250.0 $200.0 $150.0 $190.9 $142.1 $100.0 $60.4 $52.2 $44.2 $50.0 $12.3 $10.9 $12.9 $0.0 EU 25 United States Japan Korea and Taiwan Brazil Source: Anderson, Martin and van der Mensbrugghe (2005a, Table 12.3) Middle East High-income World Total Countries Developing Countries
Impacts of Doha on Agricultural Output and Employment Growth, by Country, 2005-2015 -Annual Average Growth Rate (Percent)- 6% 4% 2% 4.3% 1% 1.7% Output Employment 1.6% 4.4% 4.4% 2.2% 1.1% 0% -2% -1.4% -0.4% -2.8% -1.4% -2.1% -4% -4.1% -6% Canada EU 25 Korea and Taiwan United States Japan Brazil Source: Anderson, Martin and van Mensbrugghe (2005a, Tables 12.12 and 12.13) New Zealand
Anderson, Martin, and van der Mensbrugghe (2005a, Table 12.7). Trade Liberalization Impacts on Factor Prices, 2015 Skilled Wages Unskilled Land Owner Wages Rent Percent Change Inflation EU 25 1.3-0.1-71 -1.2 United States 0.2 0-24 -0.3 Japan 2.4 1.5-67.2-0.2 Korea and Taiwan 7.8 7.3-45.8-1.3 Large Gains Brazil 1.4 2.8 35.9 2.8 Sub-Saharan Africa 5.7 8.4 6.4-4.3 Thailand 6.3 13.4 12.5-0.2 Vietnam 15.1 23.3 5.8-0.2 New Zealand 1.1 3.5 20.9 1.5
Conclusions and Implications
Conclusions & Implications U.S. Market Is Open, Rest of World Is Not U.S. Export Growth Lags Import Growth Agricultural Trade Distorted by Tariffs, Export Subsidies, Trade Distorting Domestic Support U.S. Pushing for Deep Tariff Cuts by Developing Countries To Open More Markets for U.S. Exports Little Agreement on How Much Tariffs Might Be Cut
Conclusions & Implications Reductions in Trade Distorting Domestic Support Likely Substantial Some Adjustment for U.S. Producers Absent WTO Progress, World Trade & Economic Growth Stifled, Especially in Agriculture-Not Good for U.S. Agriculture Cotton Case Could Figure in Outcome U.S. Response Other Cases (Rice, Soybeans??) Trade Reform is at a Crossroads: Protection or Progress? If Export Markets Are Important, Trade Agreements & WTO Progress Are Necessary
Thank You! C NAS Questions? Parr Rosson Department of Agricultural Economics Texas A&M University College Station, TX 77843-2124 E-mail: prosson@tamu.edu Telephone: 979-845-3070 C NAS