International Trade of Agricultural Products

Exports are important to the continued strength of American agriculture. They account for nearly one-fourth of agricultural GDP and support about one million American jobs. Agriculture is one of the most export dependent of all sectors of the economy with one-third of US agricultural production exported annually. It is one of the few sectors that consistently ran a positive balance of trade but that positive trade balance has recently evaporated. While American agriculture’s dependence on exports will increase in the future, it is hoped that rising populations and strong economic growth in overseas markets will create additional opportunities for U.S. exports.

In the post-Uruguay Round and current Doha Round environment, American agriculture’s ability to compete in an increasingly globalized economy is depending more than ever on market forces. However, the federal and state governments still play a critical role in ensuring American agricultural producers access to international markets that are operated in an equitable manner to our own. Obtaining market access for our agricultural products should be one of the highest priorities for the Administration and Congress.

A basic tenet of the free trade principles that underlie U.S. trade policy is open access to all markets on the basis of comparative advantage. Everyone benefits if the market determines who can produce the highest quality product at the lowest cost. In theory, if the market were permitted to operate in this fashion, there would be optimum use of resources and optimum general welfare.

Totally free and unencumbered markets do not, however, exist. Governments have historically intervened, and continue today to intervene, in various ways. Some examples of this are levying border taxes on imports; subsidizing particular groups by providing government funds or by requiring economic transfers from other sectors; imposing non-tariff restrictions such as quotas, licensing schemes or technical requirements; or regulating imports for health or safety purposes. The current international trading system — the GATT Agreement that has been in place for nearly fifty years and the more recent WTO Agreements augmenting it — attempt to minimize government intervention, and to make those interventions that are agreed as permissible, more predictable and transparent.

The fundamental thrust of GATT/WTO rules is to move the international trade system toward a “tariff-only” regime, eliminating trade distorting subsidies and non-tariff trade barriers by bringing further discipline on regulations to ensure they are necessary and based on objective criteria (e.g., sound science and appropriate risk assessment). Tariffs remain the principle legitimate type of government intervention, but are subject to negotiations and progressive reduction or elimination. Once a tariff level has been negotiated, it becomes “bound” under the rules — i.e., the country commits to apply that tariff level or lower, and not to raise that tariff again except in limited and unusual circumstances.

Prior to the Uruguay Round, the U.S. Schedule contained the greatest percentage of bound agricultural tariffs of any GATT nation, and the lowest average tariff levels. In the Uruguay Round negotiations, the United States proposed — and its trading partners ultimately accepted — that all agricultural tariffs would be bound and reduced on the basis of a standard formula. In addition, non-tariff barriers such as quotas, variable levies and discriminatory licensing schemes were eliminated and converted to tariff-equivalents which were bound and reduced. Countries that had previously imposed non-tariff barriers on agricultural goods were required to provide guarantees of minimum or current access through the use of tariff-rate quotas or comparable mechanisms. Among the non-tariff barriers that were converted to tariff-rate quotas was the U.S. section 22 program, which limits imports of certain “import-sensitive” products.

Despite the success of the Uruguay Round in addressing non-tariff barriers and in lowering all agricultural tariffs, there is not a level playing field. Even after the Uruguay Round results, the United States remains far more open to imports of agricultural products than any other country in the world. U.S. tariffs on agricultural products range, on average, between 5 and 8 percent ad valorem. Tariff levels for the rest of the developed world have been estimated to be, on average, in the range of 40-50 per cent ad valorem and for the developing world, over 80% ad valorem on average.