Agricultural Trade Issues in the 108th Congress
Released: 2003-04-03T00:00:00

Introduction and Overview (1)

The increasing globalization of markets, including in agriculture, has brought not onlyopportunity, but also uncertainty, to U.S. farmers and ranchers, rural communities, and thebusinesses that sell to them and market their products. Up until 30 or 40 years ago, clearerdistinctions could be made between domestic and foreign markets for the products of agriculture -and early federal farm policy reflected this distinction. Farm support programs were initiallydeveloped primarily to support farm income and commodity prices through government spending. These programs were often combined with supply management measures that included importrestrictions. U.S. export competitiveness and impacts on world trade relations and patterns were lessimportant considerations.

Mounting productivity has enabled U.S. agriculture to produce far more than needed simply to meet domestic demand, which is relatively stable. Foreign markets, once viewed more as an outletfor surplus production, are increasingly becoming the foundation of agriculture's prosperity (see"U.S. Agricultural Exports," below). A robust world economy and strong demand (particularly inthe developing world where consumer incomes and populations are rising) suggest strong exportprospects and positive farm returns. Conversely, when exports decline, farm income suffers - asoccurred after 1998 when the Asian financial crisis signaled the start of a wider recession that hurtU.S. agricultural exports. (Congress subsequently provided billions of dollars in federal farm aidto bolster farm incomes.)

Even when world economic conditions are favorable, U.S. agriculture enters the global marketplace facing stiff competition from foreign exporting nations like Canada, Australia,Argentina, and Brazil, where production costs may be competitive with those in the United States,and the European Union (EU) and China, where strong government support in the form of subsidiesand/or other aids also play an important and often trade-distorting role, according to many analysts. Furthermore, the EU and China, along with others like Russia, Japan and Korea, have imposed whatU.S. interests consider to be unjustified sanitary and phytosanitary (SPS) and technical measures(labeling rules, segregation of imported from domestic product, etc.), high tariffs, and other importbarriers that choke access to their markets. These countries are, and are expected to remain, leadingcustomers for U.S. farm products - not only bulk grains but, increasingly, higher-value products likemeats, poultry, fruits and vegetables, and processed food products. Furthermore, their views aboutagricultural markets influence the views of policymakers in developing countries.

Farm groups and agribusinesses are well aware that many world factors influence U.S. agricultural exports. They count on lawmakers and Administration officials to develop and promoteU.S. trade policies that (1) aggressively reduce foreign-imposed barriers (including tariffs, non-tariffbarriers, domestic subsidies, and export subsidies) to U.S. farm products, (2) hold other countriesaccountable for commitments they have already made in existing trade agreements, (3) resolvefestering agricultural disputes with major trading partners, and (4) fully use USDA export and foodaid programs.

Some U.S. farm groups point out that, by maintaining barriers to U.S. imports and their own high export subsidies and internal farm supports, not all countries have fully honored existing tradeagreements. Such concern has on occasion dampened U.S. agriculture's enthusiasm for entering intonew trade agreements. Even when the United States wins a case in dispute settlement, as it did in1997, when the World Trade Organization (WTO) ruled in favor of the United States that the EUcannot ban, without scientific justification, beef produced with hormones, a country may not complywith the decision. In the beef case, the United States was authorized to impose retaliatory tariffs butU.S. beef still cannot enter the EU. Although U.S. officials say more trade disputes are resolvedfavorably than unfavorably (often through negotiation at lower levels rather than formal disputeresolution), there is a perception among some farmers that established international trading ruleshave not always worked to their benefit.

Moreover, some U.S. producer groups (particularly those representing import-sensitive commodities) have pressed for continued protection of their own commodities, and for morerestrictions on foreign farm and food imports into the United States. The U.S. average tariff onagricultural imports (12%) is much lower than the global average tariff (62%) imposed on similarimports. However, the United States along with other developed countries restricts the entry of"import-sensitive" agricultural products to protect certain domestic producers from foreigncompetition and the economic adjustments that such imports might entail. U.S. tariff-rate quotasallow zero or low duty access for specified amounts of foreign beef, sugar, peanuts, cotton, tobacco,and dairy products. Imports above the quota may enter, but face prohibitively high tariffs. Thisusually makes such imports uncompetitive in the U.S. market. Safeguards (involving the temporaryuse of higher tariffs and/or quotas) allow producers of an affected commodity or product sectoradditional time to adjust to increased import competition. Such adjustments will be more severe inareas whose production must compete with imported products. In recent years, the United States hasimposed safeguards on imports of lamb meat and wheat gluten to allow U.S. producers of thoseproducts time to adjust to foreign competition. (2)

Foreign trading partners argue that such efforts are ill-advised because free trade must flow in all directions, including into the United States. In some cases, other countries are using tradenegotiations and, sometimes, dispute settlement procedures in the WTO, to enhance their access tothe U.S. market for agricultural products, or to reduce competition in third-country markets fromsubsidized U.S. production. For example, both the lamb and wheat gluten safeguard actions weresuccessfully challenged by other WTO member countries in WTO dispute settlement and were notrenewed by the United States. More recently, in September 2002, Brazil initiated a case at the WTOagainst certain aspects of the U.S. cotton program.

Many developing countries are particularly concerned about what they see as limited access tothe U.S. market for the above import-sensitive and other commodities. Such countries also see highdomestic farm supports in richer countries like the United States and EU member states astrade-distorting and are seeking substantial reductions in such support in multilateral negotiations.

It is within this context of competing U.S. agricultural interests and other countries' concerns, that agricultural trade issues are likely to be taken up in legislation, congressional-executive branchconsultations on trade negotiations, or in oversight hearings during the 108th Congress. Among themost prominent are the following, which are discussed in more detail later in this report:

Agriculture in Bilateral and Regional Free Trade Agreements. Unique to free trade agreements (FTAs), as illustrated by the NorthAmerican Free Trade Agreement (NAFTA), are provisions designed to fully liberalize trade (e.g.,reduce and eliminate tariffs and quotas) between partners within an agreed- upon time period. Provisions affecting agricultural trade are found in two bilateral FTAs the Bush Administrationconcluded with Chile and Singapore late in 2002. Agriculture also will likely prove to be acontentious issue in negotiating other FTAs the Administration has initiated, including withAustralia. While some agricultural commodity groups and food product manufacturers welcome themarket openings these agreements may provide, producers of import-sensitive commodities (e.g.,sugar, dairy products, meats) will carefully monitor and seek to shape those provisions that affectthem.

The Administration also has placed a high priority on negotiating an agreement to remove all trade barriers within the Western Hemisphere. The Free Trade Area of the Americas ( FTAA) isintended to go beyond NAFTA to encompass all trade and services among all of the region'scountries (except Cuba), and eventually supersede both NAFTA and regional trading agreements,including the free trade agreement the United States has just negotiated with Chile and the FTAbeing negotiated with Central America. Crafting rules for liberalizing agricultural trade andnegotiating the fine details among the region's 34 countries by 2005 will be difficult and contentious.

Agricultural Negotiations in the World Trade Organization. The United States is engaged in a new round of multilateral tradenegotiations, one of whose aims is further liberalization of global agricultural trade. According tothe declaration agreeing to a new trade round, the objectives for agriculture are to substantiallyimprove market access for agricultural products, reduce and phase out export subsidies, andsubstantially reduce trade-distorting domestic support. Most U.S. agricultural interest groups supportthe inclusion of agriculture in a broader multilateral trade round. These groups believe thattrade-offs possible in a comprehensive negotiation would result in improved market prospects forU.S. agricultural exports. Others, such as producers of import-sensitive crops, who feeldisadvantaged by previous trade agreements (e.g., NAFTA) or threatened by possible newagreements, are not as enthusiastic about U.S. participation in a new round. The agriculturalnegotiations have important implications for farm bill programs that provide price and incomesupport to farmers and for export and food aid programs. There are also important differences innegotiating positions among WTO member countries, especially between the United States and theEuropean Union, and between those two WTO members and the developing countries.

Biotechnology and Agricultural Trade. Differences between the United States and its trading partners over genetically engineered (GE)crops and food products that contain or are derived from them pose a potential threat to, and in someinstances have already disrupted, U.S. agricultural trade. Corn and soybean exports are the mostseriously threatened crops. Underlying the conflicts are pronounced differences, reflected inconsumer attitudes and regulatory systems, between the United States and several important tradingpartners about GE products and their potential health and environmental effects.

China and U.S. Agriculture. There is mounting concern from U.S. producer groups, Administration officials, and other trading partners that Chinahas been slow to implement, only partially implemented, or in some instances has failed to complywith agricultural trade commitments made under recent international trade agreements. The speedand manner with which China implements its trade commitments are critical to the development ofU.S.-China agricultural trade. While U.S. agriculture and trade officials have been working toresolve these differences, progress has been slow.

Country-of-Origin Labeling. The 2002 farm bill ( P.L. 107-171 ) soon will require many food stores to provide country-of-origin labeling (COOL) onfresh fruits, vegetables, red meats, seafood, and peanuts. Proponents of COOL argue that U.S.consumers have a right to know the origin of their food, particularly during a period when foodimports are increasing, and will continue to increase under both existing and future trade agreements,and when there are concerns about food safety. Critics of the new law, however, argue that suchlabeling does not increase public health protection by telling consumers which foods are safer thanothers: all food imports already must meet equivalent U.S. food safety standards, which are enforcedvigorously by U.S. officials at the border and overseas. Scientific principles, not geography, mustbe the arbiter of safety, they add. Some critics are urging the 108th Congress to revisit the newlabeling law, on the grounds that implementation will be extremely costly and hinder rather than helpU.S. producers' competitive advantage. Proponents maintain that the expected benefits to U.S.farmers, ranchers, and consumers will outweigh implementation and compliance costs.

Agricultural Exports to Cuba. U.S. policy is to exempt commercial sales of agricultural and medical products from U.S. unilateral sanctionsimposed on foreign countries, subject to specified conditions and prohibitions. Debate continues,though, among policymakers on the scope of restrictions that should apply to agricultural sales toCuba.

Bilateral Trade Disputes. The United States is engaged in a variety of trade disputes involving individual countries. The outcome of a number ofthese could prove critical to future application and recognition of WTO farm subsidy rules, disputesettlement procedures, and other world trade issues of importance to U.S. agriculture. Among thedisputes are:

A WTO case, instituted in September 2002, by Brazil against certain aspects of the U.S. cotton program . Subsequent consultations between the United States andBrazil inDecember and January failed to resolve the dispute. Continuation of the WTO dispute settlementprocess could lead to a "final" panel decision for or against the complaining country. Resolution ofthe case in Brazil's favor could result in WTO recommendations concerning implementation of U.S.cotton program provisions. Non-compliance with such provisions on the part of the United Statescould result in compensation or possible limited trade sanctions.

A U.S. complaint that Canadian wheat trading practices, particularly theexport practices of the Canadian Wheat Board (CWB), are inconsistent with Canada's WTOobligations and disadvantage U.S. wheat exporters in Canadian and international markets. Canadamaintains that Canadian import practices and the CWB wheat export practices comply fully withinternational trade rules and its WTO obligations. Successful resolution of this dispute in favor ofthe United States could result in greater competitiveness for U.S. wheat vis-a-vis Canadian wheatin international markets and in U.S. wheat having improved access to the Canadianmarket.

Import barriers by Russia, Mexico, the EU, and Japan, affecting U.S. meat and/or poultry exports . The United States is one of the world's leaders in meat and poultry trade. Meat and poultry products are among the fastest growing components of U.S. agricultural exports. However, at the same time that the industries' reliance on foreign markets is increasing, countrieshave instituted barriers that have disrupted exports, threatened future growth, and heightened tradetensions.

Longstanding sweetener trade disputes between the United States and Mexico . Mutual recognition that NAFTA sugar provisions have not worked prompted U.S. andMexican negotiators to intensify efforts in mid-2002 to resolve two key issues: market access forMexican sugar in the U.S. market, and market access and sales of U.S. high fructose corn syrup inMexico. However, talks have been stalled.

Appropriations for Agricultural Export and Food Aid Programs. Congress is currently considering FY2004 appropriations for USDA'sinternational activities. At issue are funding levels for agricultural export subsidies, export marketdevelopment programs, export credit guarantees, and foreign food aid. Congress and theAdministration have been at odds over the use of Commodity Credit Corporation (CCC) funds tofinance food aid programs and over the Administration's decision in 2003 to begin phasing out foodaid based on surpluses.

U.S. Agricultural Exports

Agricultural exports, which totaled $53.5 billion in FY2002, are important to both the farm andnon-farm economy. (3) The U.S. Department ofAgriculture (USDA) estimates that the share of U.S.production volume exported is 43.5% for wheat, 53.3 % for rice, 20% for corn, 43.1 % for soybeansand products, and 45% for cotton. An estimated 25% of gross farm income comes from exports. According to USDA, each dollar received from agricultural exports (in 2001) stimulates another$1.47 in supporting non-farm activities. Agricultural exports generated an estimated 740,000full-time civilian jobs, including 444,000 jobs in the non-farm sector. Agricultural exports accountfor 7.36% of U.S. merchandise exports and are the third largest component of such exports afterelectrical machinery (9.88%) and vehicles (7.45%). (4) U.S. agricultural trade has consistentlyregistered a positive, though recently declining, balance.

Nearly every state exports agricultural commodities. In FY2001, the leading agricultural exporting states were (in order) California, Texas, Iowa, Kansas, Illinois, Nebraska, Minnesota,Washington, Indiana, and North Carolina. These 10 states accounted for nearly 60% of the totalvalue of U.S. agricultural exports.

After growing rapidly in the 1970s, U.S. agricultural exports reached a high of $43.8 billion in FY1981, but then declined by 40% to $26.3 billion by FY1986. A decade later, exports hadrecovered and reached a new peak of nearly $60 billion (FY1996), but then began a decline thatdipped to $49 billion by FY1999. Main reasons for the decline were continuing financial turmoilin East and Southeast Asian markets, and increased competition for corn, wheat, and soybeans inglobal markets. Exports since then have recovered, rising to $52.7 billion for FY2001, and anestimated $53.5 billion in FY2002. USDA currently forecasts FY2003 export value at $57 billion.

The commodity composition of U.S. agricultural exports has changed over time. For years, bulk commodities such as grains, oilseeds, and cotton were the mainstay of U.S. agricultural exports. Since FY1991, however, higher value products have accounted for a growing share of totalagricultural exports. These higher value exports, which include intermediate products such as wheatflour, feedstuffs, and vegetable oils and consumer-ready products such as fruits, nuts, meats, andprocessed foods, accounted for 65% of the total value of U.S. agricultural exports in FY2001.

Many variables interact to determine the level of U.S. agricultural exports: income, populationgrowth, and tastes and preferences in foreign markets; U.S. and foreign production and commodityprices; and exchange rates. U.S. agricultural export and food aid programs, domestic farm policiesthat affect output and price, and trade agreements with others also influence the level of U.S.agricultural exports.

U.S. Agricultural Imports

The United States is also a major importer of agricultural commodities and food products. USDA classifies these as either non-competitive or competitive imports. Non-competitive productsinclude primarily tropical products (coffee, cocoa, bananas, rubber, and spices) that generally are notproduced domestically. Imports that compete against domestic output include red meats (primarilybeef), fruits and juices, vegetables and preparations, wine and beer, certain grains and feeds, certainoilseeds, sugar and related products, and dairy products. USDA estimates the import share of allU.S. food consumption was 8.8% in 2000. Agricultural imports have risen by 83% over the lastdecade, from $22.7 billion in FY1991 to $41 billion in FY2001. Factors contributing to this growthin import demand include the extended U.S. economic expansion during this period, low commodityprices, the strong U.S. dollar which made imports cheaper, and the effects of trade agreements.Non-competitive imports (about $6.6 billion) accounted for 17% of all agricultural imports inFY2001. The value of competitive imports was nearly $33 billion (83% of the total).

Though a large share of agricultural imports-about 80% on average of total agriculturalimports-compete against U.S. products, they also generate economic activity in the U.S. economy. These imports provide additional income to, and increased employment at, businesses involved infood processing and in providing transportation, trade, and related services. Consumers also benefitfrom agricultural imports if they result in lower prices, and from a wider choice of products andoff-season availability of some foods, particularly fruits and vegetables. (For more information see CRS Report 98-253 , U.S. Agricultural Trade: Trends, Composition, Direction, and Policy .)

Agriculture in Bilateral Free Trade Agreements (5)

Issue

Unique to free trade agreements (FTAs), as illustrated by the North American Free Trade Agreement (NAFTA), are provisions designed to liberalize trade by reducing and eliminate tariffs,quotas, and nontariff barriers) between partners within an agreed- upon time period. Provisionsaffecting agricultural trade are found in two bilateral FTAs the Bush Administration concluded withChile and Singapore late in 2002. Agriculture also will likely prove to be a contentious issue innegotiating other FTAs the Administration has initiated. While some agricultural commodity groupsand food product manufacturers welcome the market openings these agreements may provide,producers of import-sensitive commodities (e.g., sugar, dairy products, meats) will carefully monitorand seek to shape those provisions that affect them. Producers are concerned about the transitionperiods before agricultural products would be granted free access into the other country's market,and about rules of origin, safeguards against import surges, and the terms under which sanitary andphytosanitary (SPS) rules are applied.

Background and Analysis

In 2002, U.S. agricultural exports to the 14 FTA candidate countries (including Chile and Singapore) totaled $5.0 billion, and accounted for almost 9% of all U.S. agricultural exports. Halfof these sales were to the five Central American countries, a growing U.S. market. Combined U.S.agricultural imports from these 14 countries totaled $5.2 billion, and represented over 12% of allagricultural imports. Imports from the Central American candidates totaled $1.9 billion (more thanone third of the import value entering from all FTA candidates). The largest single country supplierwas Australia (selling $1.9 billion in farm goods), followed by Chile ($1.2 billion).

Chile . In the Chile FTA, negotiating the agricultural provisions - especially the terms of market access for sensitive farm products and the application of some SPS rules - proved to beamong the most contentious issues. These were resolved when top trade officials from bothcountries became involved in the process to bring the negotiations to a conclusion. Both the UnitedStates and Chile agreed to phase out tariffs - the primary means of border protection - on asubstantial portion of agricultural products traded between them by 2007, but compromised to adopta 12-year transition period before each market is fully open to import-sensitive products enteringfrom the other country. The market access provisions will apply to all traded merchandise - noagricultural product is excluded. The agreement eliminates the use of export subsidies onagricultural trade between both countries, but allows the United States to respond if third countriesuse subsidies to displace U.S. products in the Chilean market. It also includes an agriculturalsafeguard provision sought by the United States to protect agricultural producers from sudden surgesin Chilean imports. Both sides also have committed to resolve outstanding SPS issues that have, forexample, limited U.S. sales of meat products and some fruits to Chile.

The U.S. Trade Representative (USTR) states the FTA's provisions will grant duty-free status to more than 75% of U.S. agricultural exports (valued at $111 million in 2002) to Chile within 4years. Such treatment will apply to U.S. pork and products, beef and products, soybeans and soybeanmeal, durum wheat, feed grains, potatoes, and processed food products (i.e., french fries, pasta,distilled spirits and breakfast cereals). Chilean tariffs on all other products will be phased out within12 years. The agreement requires Chile to phase out with respect to imports from the United Statesits price-band system designed to protect domestically-produced wheat, wheat flour, vegetable oils,and sugar. Chile also committed to recognizing the U.S. meat grading system - allowing for the saleof U.S. beef and pork products with the USDA prime and choice labels in that market.

Chile views improved market access for its agricultural products to the large and growing U.S. market as important to its economic growth, because agricultural exports ($1.2 billion in 2002)represent about one-third of Chile's total exports to the United States. Its negotiators soughtimmediate reductions in U.S. tariffs on horticultural and other products, as well as changes in howU.S. anti-dumping and countervailing rules are applied. U.S. producers of apricots, mushrooms,cling peaches, fruit juices, and other horticultural products, however, asked to be excluded from theFTA's coverage or sought long transition periods before tariffs on their products were eliminated. According to Chile's Foreign Minister, the agreement grants 95% of Chile's exports duty-free statusto the U.S. market within four years. With wine an important Chilean export, Chile agreed to reduceits tariff on wine imports to the lower U.S. level, after which both countries will eliminate tariffs onwine. Negotiating Chile's terms of access for agricultural products viewed as "sensitive" by somesegments of U.S. agriculture reportedly were difficult to conclude. Details that took time to resolvein creating tariff-rate quotas (TRQs) for dairy, sugar, and horticultural products were the size of eachquota, the pace at which the over-quota tariff rate is phased out, the growth rate for each quotacreated, and whether the within-quota tariff would be low or zero. Access for sugar reportedly willdepend on Chile (now a sugar importer) becoming a net exporter (i.e., produces a surplus availablefor export).

Negotiations on SPS barriers proceeded along a track parallel to the market access talks, but the FTA agreement appears to leave them unresolved. With U.S. exporters having faced SPSobstacles in recent years in selling pork, beef, dairy and poultry products, and certain fruit to theChilean market, the United States pressed to resolve outstanding SPS issues so that they would notaffect U.S. exporters' access to the Chilean market once the FTA takes effect. Negotiatorsapparently did not resolve SPS issues relating to U.S. beef and pork exports. The final textreportedly does not include language sought by the United States that Chile would accept the U.S.meat inspection system as equivalent to its own. U.S. trade officials indicated last December thatthe Administration will not submit the FTA to Congress for approval until Chile accepts the U.S.position.

The private-sector Agricultural Policy Advisory Committee (APAC) on February 28, 2003, reported to USTR that the FTA with Chile "will improve U.S. exports of agricultural products byopening the Chilean market and providing reciprocal access for U.S. products, [and] ... provides asensible timetable for the elimination of agricultural tariffs for import sensitive products includinga gradual phase out of tariffs and an import safeguard." Some of the commodity advisorycommittees, though, in their separate reports raised concerns about some provisions of the FTA. They complained, for example, that not being provided with the text of the agreement by USTRhampered their ability to assess potential impacts.

Singapore . Being primarily urban, this city state produces little of its own food. Reflecting this, its tariffs applied on imported agricultural commodities and food products (except for beer,wine and spirits) are currently zero. U.S. agricultural and food exports in 2002 totaled $240 million,compared to $56 million in similar imports. Top U.S. agricultural exports were fruit and relatedproducts, vegetables and related products, cooking oils, snack foods, and poultry meat. Purchasesof cocoa paste and butter, snack foods, rubber and related products, and spices from Singaporeaccounted for more than half of agricultural imports.

Because Singapore is a major shipping hub, some U.S. commodity groups sought the inclusion of rules of origin in the FTA to prohibit duty-free treatment of food products transhipped throughits port from neighboring agricultural producing countries in Southeast Asia. The APAC reportedto USTR on February 26, 2003, that the agreement's "rules of origin will protect U.S. producersfrom imports of ineligible products from third countries through Singapore." The majority on thesweeteners and related products advisory committee, however, raised concerns about whether theserules are written in such a way to prevent access to the U.S. market for sugar-containing productsshipped from Singapore. APAC's report further stated that this FTA achieves U.S. negotiatingobjectives of eliminating tariffs and securing market opportunities "by permanently opening theSingapore market for U.S. agricultural products," making them eligible for duty free access.

Other FTAs . As part of its overall trade strategy, the Bush Administration has initiated, or shortly will begin, FTA negotiations with four other countries or regional blocs: five CentralAmerican countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), Morocco, theSouthern African Customs Union (South Africa, Botswana, Lesotho, Namibia, and Swaziland), andAustralia.

Some U.S. agricultural interests concerned about the competitive pressures expected from free trade with these countries oppose negotiating FTAs, preferring that the Administration instead focuson efforts to secure multilateral trade liberalization in the WTO's trade negotiations. As examples,the U.S. sugar industry advocates this strategy, since Central America, Australia, and South Africaare major sugar exporters. The U.S. beef and dairy industries also are concerned about Australia'sability to supply the U.S. market, and oppose an FTA with that country. U.S. food manufacturers,though, see opportunities in FTAs with Central America, Morocco, and South Africa.

Role of Congress

The President notified Congress January 30, 2003 of his intent to sign free trade agreementswith Singapore and Chile, initiating a 90-day period mandated by the Trade Act of 2002 ( P.L.107-210 ), after which the United States can sign the agreements. The 2002 act further requires thatthe Administration consult with the House and Senate Agriculture Committees, particularly on thepotential impact of free trade on U.S. import-sensitive agricultural products, as these FTAnegotiations proceed. Once agreements have been signed, the President and Congress will developdraft implementing legislation which would be handled by Congress on an expedited or fast trackbasis according to procedures established in P.L. 107-210 .

For More Information

CRS Electronic Briefing Book, Agriculture Policy and Farm Bill, Agriculture in the U.S. - Chile Free Trade Agreement.

CRS Electronic Briefing Book, Trade, U.S.-Chile Free Trade Agreement .

CRS Electronic Briefing Book, Trade, U.S.-Central America Free Trade Agreement .

CRS Electronic Briefing Book, Trade, Singapore-U.S. Free Trade Agreement .

CRS Electronic Briefing Book, Trade, U.S.-Southern African Customs Union (SACU) Free Trade Agreement.

CRS Report RL31709 , The U.S.-Singapore Free Trade Agreement .

CRS Report RL31144 , The U.S.-Chile Free Trade Agreement: Economic and Trade Policy Issues .

Agriculture in the Free Trade Area of the Americas (FTAA) (6)

Issue

The Administration has placed a high priority on negotiating an agreement to remove all trade barriers within the Western Hemisphere. The FTAA is intended to go beyond NAFTA to encompassall trade and services among all of the region's countries (except Cuba), and eventually supersedeboth NAFTA and regional trading agreements, including the free trade agreement the United Stateshas just negotiated with Chile and the FTA being negotiated with Central America. Crafting rulesfor liberalizing agricultural trade and negotiating the fine details among the region's 34 countries by2005 will be difficult and contentious.

Background and Analysis

U.S. agricultural exports to the markets that an FTAA would open (the countries of South America, Central America, and the Carribean) were $4.457 billion or 8.4% of U.S. global farmproduct sales in 2002. Commodity and food imports from these three regions, by contrast, accountedfor $6.814 billion, nearly 17% of U.S. agricultural imports.

At the third Summit of the Americas in April 2001, hemispheric leaders ratified dates for concluding the FTAA negotiations (January 2005) and making the agreement effective (December2005). They further committed to make the negotiating process more transparent and accessible. Trade officials reached agreement on the modalities (formulas, targets, or schedules) to be followedfor making tariff reductions in late August 2002. They agreed that all countries (except CARICOMmembers - comprising most Caribbean islands, Belize in Central America, and Guyana andSuriname in South America) could start tariff cuts from current applied rates rather than from thehigher bound rates that all WTO members adopted in the last multilateral negotiating round.CARICOM countries will be allowed to identify those agricultural and other products where themaximum bound rate could be used as the reference point for reducing tariffs. The November 1,2002, meeting of trade ministers in Ecuador finalized the negotiating pace and process to be followedover the 2003-2004 period. These final stages of the FTAA negotiations are being co-chaired byBrazil and the United States. All FTAA countries met the February 15, 2003, deadline for presentingtheir initial tariff reduction offers. Each country will respond to these in the form of market accessrequests, due by June 15, 2003. Revised offers would then follow this "request-offer" process.

USTR's Ambassador Zoellick, on February 11, 2003, laid out the scope of the U.S. tariff reduction offer on agricultural and other products. In unveiling this offer, he said that the UnitedStates is prepared to grant immediate duty-free access on 56% of the agricultural products that enterfrom non-NAFTA countries once the agreement takes effect. On politically-sensitive farm products,Ambassador Zoellick stated that the United States proposes to eliminate tariffs with specifictimetables that would differ between countries or regional groups. Transition periods could be 5 or10 years, or even longer, depending upon a country's size and its level of economic development,and the type of agricultural product. Ambassador Zoellick indicated all agricultural products are onthe table and subject to negotiation (i.e., no exclusions), and that the United States will move forwardwith other countries willing to take the same position.

Hemispheric free trade in agriculture by about 2020 is envisioned if negotiators reach agreement on an FTAA in 2005. The agricultural component of the FTAA negotiating process, though, couldbecome problematic once negotiators begin to apply negotiating modalities to specific commoditiesand food products that each country historically has protected. Some Latin American countries,particularly Brazil, seek increased access to the U.S. market for competitive products such as beef,citrus, and sugar. U.S. commodity groups and agribusiness seek additional openings for theirproducts in the rapidly growing Latin American market. They also seek legal assurances that allcountries will abide by sanitary and phytosanitary (SPS) rules with respect to agricultural imports. Though the United States will emphasize eliminating tariffs and other barriers to agricultural trade,Brazil and other countries have signaled they want the negotiating agenda to also address the issueof domestic agricultural support (i.e., farm price and income support). They have suggested linkingreductions in their higher tariffs to a concession by the United States on the domestic support issue. The United States has countered that this issue is not one of the agreed-upon FTAA objectives, andshould instead be addressed jointly by all FTAA countries in the ongoing multilateral WTOagriculture negotiations.

Role of Congress

Congress would take up any agreement that results from negotiations to establish the FTAA under fast track procedures (in P.L. 107-210 ) for congressional consideration of legislation toimplement trade agreements. In the meantime, according to the procedures established in P.L.107-210 , Congress and the Administration will be consulting as negotiations proceed.

For More Information

CRS Report RL30935 , Agricultural Trade in the Free Trade Area of the Americas .

CRS Report RS20864 , A Free Trade Area of the Americas: Status of Negotiations and Major Policy Issues .

Agricultural Negotiations in the World Trade Organization (7)

Issue

The United States is engaged in a new round of multilateral trade negotiations, one of whoseaims is further liberalization of global agricultural trade. According to the declaration agreeing toa new trade round, the objectives for agriculture are to substantially improve market access foragricultural products, reduce and phase out export subsidies, and substantially reduce trade-distortingdomestic support. Most U.S. agricultural interest groups support the inclusion of agriculture in abroader multilateral trade round. These groups believe that trade-offs possible in a comprehensivenegotiation would result in improved market prospects for U.S. agricultural exports. Others, suchas producers of import-sensitive crops, who feel disadvantaged by previous trade agreements (e.g.,NAFTA) or threatened by possible new agreements, are not as enthusiastic about U.S. participationin a new round. The agricultural negotiations have important implications for farm bill programsthat provide price and income support to farmers and for export and food aid programs. There arealso important differences in negotiating positions among WTO member countries, especiallybetween the United States and the European Union, and between those two WTO members and thedeveloping countries.

Background and Analysis

At the World Trade Organization (WTO) Fourth Ministerial Conference in Doha, Qatar, in November 2001, trade ministers agreed on a declaration to begin a new round of multilateral tradenegotiations (MTNs), including negotiations on agriculture. This new round, because of its emphasison integrating developing countries into the world trading system, is called the Doha DevelopmentAgenda (DDA). A first phase of agricultural trade negotiations had been underway since early 2000. The DDA incorporates those negotiations into a comprehensive multilateral trade negotiation andbegins a second phase of negotiations on agriculture.

For agriculture, the Doha Ministerial Declaration states that "building on the work carried out to date (in the sectoral negotiations)" and "without prejudging the outcome of the negotiations, wecommit ourselves to comprehensive negotiations aimed at: substantial improvements in marketaccess; reductions of, with a view to phasing out, all forms of export subsidies; and substantialreductions in trade-distorting domestic support." The Declaration also provides that "special anddifferential treatment for developing countries shall be an integral part of all elements of thenegotiations." The Declaration takes note of "non-trade concerns reflected in negotiating proposalsof Members" and confirms that " non-trade concerns will be taken into account" in thenegotiations.

During 2002, WTO member countries discussed the issues of market access, export competition, and domestic support. The United States, the Cairns Group of agricultural exportingcountries, (8) the European Union (EU), Japan, andseveral developing countries submitted negotiatingproposals during 2002. (9) The DDA called forreaching an agreement by March 31, 2003 on "modalities" (e.g., formulas, targets, timetables) for achieving the objectives mandated by the DohaDeclaration, but that deadline was missed. Now, negotiations on modalities will continue butprobably not be completed until the September WTO Ministerial Conference scheduled forSeptember 2003 in Cancun, Mexico.

Negotiating modalities has not been easy. Member countries differ sharply in their choice of modalities. For example, some want to reduce high tariffs more rapidly than lower tariffs, whileothers will want to protect "sensitive" products by slowing the pace of tariff reduction. Similarly,some want rapid reductions in export or domestic subsidies while others will want longer timetablesfor reductions. Once an agreement on modalities is reached, WTO member countries would beginto negotiate individual country schedules or lists of commitments.

The U.S. position, first tabled in June 2000 and amplified in a July 2002 proposal, includes the elimination of agricultural export subsidies; substantial reductions in tariffs (with no country'sindividual tariff exceeding 25%); 20% increases in tariff-rate quotas on agricultural imports;disciplines on state trading enterprises; and reductions in "amber box" spending (trade distortingdomestic support) to no more than 5% of the value of each country's total agricultural production- the objective being to make all countries' domestic support levels comparable in relative terms(i.e., harmonized). (10) Most of these changeswould be phased in over 5 years. Ultimately, accordingto the U.S. proposal, tariffs and domestic support also would be eliminated. The Cairns Groupproposal, which is strongly supportive of the U.S. position, also calls for deep cuts in tariffs anddomestic support and the elimination of export subsidies. Many in Congress have expressed supportfor the U.S. negotiating proposal, but have made their support contingent on reduction andharmonization of tariffs and subsidies by other WTO members, especially the EU.

In sharp contrast to the U.S. position, the EU calls for applying formulas used in Uruguay Round agriculture negotiations (1986-1994) as modalities. Such an approach would yieldprogressive reductions in tariffs and subsidies but not harmonization or elimination. The EUalso has conditioned its support for export subsidy reduction on negotiating disciplines forexport credit programs and food aid programs. The EU negotiating proposal, along withthose of Japan and Korea place greater emphasis on so-called non-trade concerns likeprotecting the environment, animal welfare, and rural development. Those WTO membersare seeking exemptions from WTO reduction commitments and disciplines for subsidiesprovided to promote such non-trade concerns. The U.S. position is silent on non-tradeconcerns, but U.S. trade negotiators express fears that payments to producers to promotenon-trade concerns would be disguised trade-distorting measures.

Some suggest that the success of the agriculture negotiations depends on the pace of agricultural policy reform in the EU and the United States. A recent agreement betweenFrance and Germany to maintain EU domestic farm support at current levels and postpone anyreductions in support until after 2007 may make it more difficult for the EU to agree toagricultural trade reforms in the current round. In the EU, efforts to reform its CommonAgricultural Policy face considerable opposition from several EU member states. Thesereforms, which include substantial de-coupling of income support from production andreductions in price supports, could, if adopted, facilitate the EU's ability to accept cuts intrade-distorting domestic support or the elimination of export subsidies.

In the United States, the President on May 13, 2002, signed into law a farm bill ( P.L. 107-171 ) to replace the 1996 Federal Agricultural Improvement and Reform, or FAIR, Act)that, many critics say, could raise trade-distorting domestic support above U.S. WTOcommitments to reduce such spending and also undermine the U.S. position in the new round. However, the farm bill stipulates that the Secretary shall, to the maximum extent possible,make adjustments in U.S. farm subsidies to ensure that it does not exceed levels allowableunder the WTO Agreement on Agriculture. Moreover, U.S. trade officials insist that theUnited States has not wavered from its negotiating objective of securing substantialreductions in domestic subsidies, including U.S. subsidies, that distort trade, and thatcongressional support for the U.S. negotiating proposal remains strong.

Developing countries who constitute the majority of WTO members are calling for rapid dismantling of developed countries' trade barriers and the elimination of production-linkeddomestic subsidies. Developing countries are also seeking exemptions for developingcountry domestic support deemed essential for economic development. Developing countriesare a large and diverse group with many different position on negotiating issues, but many,especially those that are exporters of agricultural products, have targeted both U.S. and EUsubsidies for elimination in the negotiations. While developing countries are seekingsubstantial reductions in agricultural tariffs of developed countries, they are resistant to theidea of reciprocal tariff reductions, preferring instead to be accorded special and differentialtreatment which would entail maintaining tariffs or phasing them down over lengthy timeperiods.

To facilitate the process of reaching agreement on modalities, the chairman of the Agriculture Negotiating Group, Stuart Harbinson, issued on February 17, 2003 and revisedslightly on March 20, 2003, a draft paper with various proposals for modalities. Harbinson's"modalities " report attempted to steer a middle course between the U.S. and EU negotiatingpositions, while according special and differential treatment to developing countries. Chairman Harbinson's report dealt with the three so-called pillars of the agriculturenegotiations: market access, export competition, and domestic support. On market access,he proposed that for tariffs greater than 90% ad valorem the simple average would be reducedby 60% subject to a minimum cut of 45% per tariff line; for agricultural tariffs lower than orequal to 90% but greater than 15%, the simple average reduction would be 50% subject to aminimum cut of 35% per tariff line; and for all agricultural tariffs lower than or equal to 15%,the simple average reduction would be 40% subject to a minimum cut of 25% per tariff line.

On export competition, Harbinson's modalities report recommends that export subsidies be eliminated over a ten-year period. Export credit and food aid programs would also becovered by new rules. Repayment terms for export credits would be limited to a maximumof six months but developing countries would be allowed longer repayment periods. Onlygrant food aid would be permitted under the Harbinson recommendations. However, food aidprovided in kind for development projects could be provided through United Nations foodagencies or UN food agency projects operated by non-governmental or charitableorganizations.

On domestic support, the modalities report calls for a 60% reduction in trade-distorting (or amber box) support. The report also suggested that trade-distorting support tied toproduction limits (blue box support used primarily by the EU) be capped and then reduced by50% over five years. The modalities report also included an option for eliminating the bluebox altogether by including it in the amber box category and subjecting it to a 60% reduction.

While U.S. trade negotiators indicated they considered the modalities report as a reference point for further negotiations, they were highly critical of specific proposals. At ameeting of WTO trade ministers in Tokyo (February 14-16) where a draft of the report wasconsidered, the United States and the Cairns Group said the recommendations fell far shortof their earlier proposals. U.S. criticisms, among others, were that the market accessprovisions did not result in harmonization of tariff levels and that the application of theHarbinson approach would still leave very high tariffs on many products, especially meatproducts. While the U.S. trade officials welcomed the elimination of export subsidies, theynoted that the ten-year phase-out schedule should be considerably shortened. According toU.S. participants in the Tokyo meeting, reduction proposals for amber box support wouldenable the EU to maintain trade-distorting blue box payments and to continue to provideconsiderably more trade-distorting amber box support than could the United States. U.S.amber box support is capped at $19 billion annually, while the EU's is capped at $67 billion. Under the Harbinson proposal, U.S. amber box support would fall to around $8 billion peryear, while the EU's would be capped at $27 billion per year.

Not only the Administration, but many in Congress reacted negatively to the Harbinson proposals for the agriculture trade negotiations. A particular concern was that the Harbinsonproposal for a 60% reduction in trade-distorting or amber box support, did not "level theplaying field" between the United States and the EU. Permitted EU trade distorting subsidieswould still be more than three times the level of permitted U.S. subsidies. Also in the 2002Trade Act, Congress had made preserving export credit guarantee programs a majornegotiating objective. The Harbinson proposals for tightening export credit programdisciplines are thus likely to come under intense congressional scrutiny.

The EU also reacted negatively to the Harbinson proposals. In the EU view, they were unbalanced and placed most of the burden of adjustment on the EU. The EU was particularlyconcerned that, with the exception of adding animal welfare subsidies to the category ofnon-trade distorting (or green box) subsidies, the Harbinson report ignored non-tradeconcerns. The EU criticized the report's call for the elimination of export subsidies withoutsimilarly disciplining export credit programs, such as U.S. export credit guarantees. EUofficials argued also that blue box subsidies are less trade distorting than amber box supportand should not be subject to the same reduction requirements as amber box support.

Missing the deadline for agreeing to modalities, some observers suggest, indicates that the agriculture negotiations are stalled with neither side prepared to compromise. Some evensuggest that the inability to agree on a way forward for agriculture imperils the entire Doharound. However, both U.S. and EU negotiators are maintaining that an agreement onmodalities can be reached by the time of the Cancun Ministerial and that the missed deadline,though serious, will not forestall concluding the round by January 1, 2005.

Role of Congress

Congress would take up any agreements that results from the Doha round of trade negotiations under fast track procedures (in P.L. 107-210 ) for congressional consideration oflegislation to implement trade agreements. In the meantime, according to the proceduresestablished in P.L. 107-210 , Congress and the Administration will be consulting asnegotiations proceed. Interaction during the period of consultation between Congress and theAdministration on negotiating positions and strategies will lay the groundwork forcongressional consideration of an agreement.

Meeting the 2005 deadline for completing negotiations in the new trade round is critical as are the consultations with Congress required by the Administration under the 2002 TradeAct. Congressional fast track procedures will expire by June 1, 2005, but could be extendedif the President satisfies the consultation requirements in P.L. 107-210 and if progress is beingmade in meeting the negotiating objectives set forth in the Trade Act of 2002.

For More Information

CRS Electronic Briefing Book, Trade, Agriculture Negotiations in the World Trade Organization.

CRS Electronic Trade Briefing, Trade, The World Trade Organization: the Doha Ministerial.

CRS Issue Brief 98928, The World Trade Organization-Background and Issues , updated regularly

CRS Report RS21085, Agriculture in WTO Negotiations

CRS Report RS21085, Agriculture in WTO Negotiations .

Biotechnology and Agricultural Trade (11)

Issue

Differences between the United States and its trading partners over genetically engineered (GE) crops and food products that contain or are derived from them pose apotential threat to, and in some instances have already disrupted, U.S. agricultural trade. Cornand soybean exports are the most seriously threatened crops. Underlying the conflicts arepronounced differences, reflected in consumer attitudes and regulatory systems, between theUnited States and several important trading partners about GE products and their potentialhealth and environmental effects.

Background and Analysis

Widespread farmer adoption of bio-engineered crops in the United States makes consumer acceptance of GE crops and foods at home and abroad critical to U.S. producers,processors, and exporters. U.S. farmers, who use GE crops to reduce production costs ormake field work more flexible, planted 66% of the estimated 145 million acres planted to GEcrops worldwide in 2002, according to the International Service for the Acquisition ofAgri-Biotech Applications. Supporters of GE crops maintain that the technology reduces theuse of environmentally damaging chemical inputs. U.S. consumers, with some exceptions,have been generally accepting of the safety of GE foods. More attention has been paid in theUnited States to the allegedly adverse environmental impacts of planting GE varieties. Incontrast, in the European Union (EU), Japan, South Korea, and elsewhere, consumers,environmentalists, and some scientists maintain that the long-term effects of GE foods on bothhealth and the environment are unknown and not scientifically established. The EU, inparticular, insists that precaution should be used in approving and regulating GE foods. Elsewhere, China has announced new regulations for approving and labeling GE products,which, U.S. officials and exporters contend, could be potential trade barriers.

In the EU, a de facto moratorium, in effect since 1998, on approvals of GE crops haseffectively eliminated U.S. corn exports. Industry and USDA estimates are that $300 millionof corn exports are lost annually as long as the moratorium is in effect because the EU has notapproved GE varieties of corn produced in the United States-varieties which EU scientificcommittees that advise the EU Commission have found to be safe for consumption and forthe environment. Although China's regulations for GE crops threaten U.S. soybean exports,so far soybean exports, which have averaged around $900 million per year (2000-2002), havenot been disrupted.

Supporters of GE crops maintain also that the technology holds promise for enhancing agricultural productivity and improving nutrition in developing countries. There are,however, many technical, legal, social and other obstacles to be overcome before the potentialcontribution of biotechnology to food security in developing countries could be realized. Inthe meantime, concerns about the possible health, environmental, and commercial risksassociated with GE crops have posed some difficulties in meeting urgent food aid needs insouthern Africa. One country suffering from severe food shortages in that region has rejectedfood aid shipments containing GE corn, while others in the region have required that GE cornin food aid be milled, thus adding to the costs of providing relief. Other developing countriescomplain about the lack of international standards and procedures for assuring that health andenvironmental risks associated with GE crops are manageable and acceptable, thusminimizing commercial risks from producing and exporting GE crops.

U.S. regulations for GE foods have facilitated their introduction into U.S. agriculture and food processing. The principle has been that GE foods are "substantially equivalent" tonon-GE foods; therefore, existing regulations for approving foods are appropriate andadequate. Labeling with respect to GE content is not required, except where there is asignificant difference between the conventional and the GE food product (for example, thepresence of an allergen). The EU, Japan, South Korea, China, Australia, and New Zealandeither have or are establishing mandatory labeling requirements for products containing orderived from GE ingredients. Japan, the EU, China, and South Korea are respectively thesecond, fourth, fifth, and sixth largest overseas markets for U.S. agricultural exports.

Now that the EU has approved further EU-wide legislation for approving and regulatingGE products, for tracing GE crops through the marketing chain, and for labeling products thatcontain or are derived from GE ingredients, there appears to be some possibility that themoratorium would be lifted. The new regulations are expected to be in place by mid-2003. Some EU member states, however, might still object to such approvals. Meanwhile,Administration officials are considering whether to challenge the EU's moratorium onapprovals of genetically engineered crop varieties in WTO dispute settlement. A number ofU.S. agricultural interest groups and Members of Congress have been urging the United Statesto bring the EU into WTO dispute settlement on the biotechnology issue. The U.S. challengewould be based on the argument that there is no legal basis for a moratorium under WTOrules.

The U.S. food and agriculture sector faces the challenge of responding to consumer demand, especially overseas, for products differentiated as to their GE or non-GE content. U.S. agribusinesses also are seeking to influence EU regulations for tracing GE foods throughthe marketing chain and for labeling GE foods. U.S. industry is assessing the costs andbenefits of separating GE from non-GE crops and of preserving crop identity in the marketingchain. U.S. regulators are making changes to facilitate voluntary labeling or enhance systemsfor certifying statements about the GE content of foods.

Role of Congress

The House and Senate Agriculture Committees, the House Ways and Means and the Senate Finance Committees will be among those closely watching biotechnologydevelopments in the EU and elsewhere and the Administration's response. A number ofcongressional leaders, including the Speaker of the House and the Chairman of the HouseAgriculture Committee, have publicly urged the Administration to formally challenge the EUpolicy before the WTO. Whether new legislation will be offered and advanced in the 108thCongress which promotes actions to support U.S. exports of GE products remains to be seen.

The 107th Congress passed several measures of this type, including the following provisions in the 2002 farm bill ( P.L. 107-171 ): a biotechnology and agricultural tradeprogram, aimed at barriers to the export of U.S. products produced through biotechnology(Section 3204); competitive grants for biotechnology risk assessment research (Section 7210);agricultural biotechnology research and development for developing countries (Section 7505);and a program of public education on the use of biotechnology in producing food for humanconsumption (Section 10802). Also, legislation that gives the President trade promotion (or"fast track") authority ( P.L. 107-210 ) contains language calling on U.S. trade negotiators tonegotiate rules and dispute settlement procedures that will eliminate unjustified restrictionsand requirements, including labeling, of biotechnology products.

Some bills introduced in the 2nd session of the 107th Congress that took other approaches to, or address other aspects of, biotechnology might be reintroduced in the 108th. Such bills included H.R. 4814 , which called for mandatory labeling of GE foods. Other bills in the 107th ( H.R. 4812 , H.R. 4813 , and H.R. 4816 ) dealt respectively with legal issues raised by cross-pollination withGE plants, a study of the safety of GE foods, and liability for injury caused by GE organisms.

For More Information

CRS Electronic Briefing Book Page, Biotechnology and Agricultural Trade .

CRS Electronic Briefing Book Page, Agricultural Biotechnology .

CRS Report RS21381, Adoption of Genetically Modified Agricultural Products.

China and U.S. Agriculture (12)

Issue

There is mounting concern from U.S. producer groups, Administration officials, and other trading partners that China has been slow to implement, only partially implemented, orin some instances has failed to comply with agricultural trade commitments made underrecent international trade agreements. The speed and manner with which China implementsits trade commitments are critical to the development of U.S.-China agricultural trade. WhileU.S. agriculture and trade officials have been working to resolve these differences, progresshas been slow.

Background and Analysis

China (including Hong Kong) represents an important market for U.S. agricultural products with prospects for strong growth. During FY2001 and FY2002, U.S. agriculturalexports to China (including Hong Kong) averaged $3 billion per year making it the fifthlargest market for U.S. farm products. U.S. agricultural imports from China averaged over$800 million. To maintain access to this trade potential, to help ensure China's integrationinto the global economic community, and to bring China's trade regime under internationalrules and standards, the United States successfully negotiated the bilateral U.S.-ChinaAgricultural Cooperation Agreement (ACA) in November 1999. The United States alsogranted China permanent normal trade relations status, approved by the 106th Congress andsigned into law ( P.L. 106-286 ) in October 2000. The market access commitments negotiatedunder the ACA provided the eventual basis for China's Protocol of Accession to the WorldTrade Organization (WTO) in December 2001.

Under these agreements, China made very specific market access commitments regarding the reduction of tariffs for agricultural products; the conversion of non-tariff trade barriers totariffs including the establishment of tariff-rate quotas (TRQs) for bulk agriculturalcommodities; and the allocation of a growing share of within-quota imports to private sectorimporters. China agreed also to comply with WTO rules for sanitary and phytosanitary (SPS)and technical measures, to eliminate export subsidies, to stop discriminating betweendomestically produced and imported products, and to make its trade and policy regulationspublic and more transparent.

China's progress in implementing its trade commitments is affected by a number of factors including complications inherent in switching from a heavily regulated, secretivecentrally planned economy to an open market-based economy. Difficulties in coordinatinglocal or provincial with national interests also slow progress. Both the U.S. Government andthe WTO have established mechanisms to monitor China's implementation of its accesscommitments including those on agriculture. Several compliance issues have surfaced andremain unresolved.

TRQ Implementation. China repeatedly delayed announcement of regulations for the 2002 TRQ allocations (its first full year of WTOmembership). When finally announced in May 2002, they did not appear to provide themarket access that the United States and other exporting countries had anticipated underChina's WTO agreement. A key feature of China's TRQ commitments included distributingquota shares to private enterprises rather than through the tightly-controlled state tradingenterprises (STEs). However, U.S. officials complain that U.S. exporters have been unableto identify clearly which users in China have received TRQs and how much. In addition, U.S.exporters have reported additional problems including delays in the issuance of importpermits; supplementary requirements that a portion of TRQ imports be destined for re-exportin processed products, thus shielding the domestic market; quota allocations restricted tounit-sizes smaller than viable quantities for bulk commodities; unexpected contractualprerequisites for TRQ eligibility; and additional import licensing requirements by the StateAdministration of Quality Standards, Inspection and Quarantine (AQSIQ).

Tariffs. China agreed that, with accession, it would gradually reduce its tariffs for agricultural products from an average level of 22%to an average of 17% by 2004. "Bound tariff rates" were incorporated as part of China'sschedule of concessions to provide ceilings for individual commodity tariff rates. However,several cases have been reported by U.S. firms exporting to China where the advalorem -equivalent tariffs applied in 2002 (based upon actual Chinese import data for severalagricultural products) have exceeded the scheduled tariffs.

Value-Added Tax (VAT). Special tax treatment given to domestically produced agricultural products appears inconsistent withWTO commitments. U.S. agriculture officials have reported instances where China hasapplied its VAT at a higher rate to imports than to domestic production.

Biotechnology Regulations. A temporary import regime governing rules for approval and labeling of farm products containinggenetically modified organisms (GMOs) is presently in place. Under the regime, geneticallyengineered products are supposed to be acceptable if exporting countries have approved themand they are undergoing Chinese testing and approval procedures. U.S. producers haveexpressed concerns about overly vague rules, uncertainties over how the import regime willfunction, and likely extensive paperwork requirements. The U.S. soybean industry isparticularly concerned that this new regime may disrupt trade and cause economic harm. China has been the second-largest destination for U.S. soybean exports over the past threeyears (FY2000 - FY2002) averaging nearly $900 million annually in value. To date, U.S.soybean exports to China have not been disrupted.

Export Subsidies. Although China had canceled direct export subsidies since joining the WTO, other policies appear to have replacedthem according to a report by USDA's Economic Research Service. As a result, China's cornexports have continued at a near-record pace through 2002 at prices significantly belowex-warehouse prices in China's production areas. The principal destination for China's cornexports is South Korea. Generally a buyer of U.S. corn, South Korea's imports of U.S. cornfor the first eight months of 2002 were down 70 percent from a year earlier.

Other Problems. U.S. exporters have also expressed concern over the imposition of additional handling requirements and other hurdlesfor Pacific Northwest wheat; access denied for other U.S. farm and food products on SPSgrounds including fresh potatoes, avocados, peaches, pears, and certain apple varieties; andnew restrictions for fertilizers.

Although these irregularities are inconsistent with WTO rules, the Chinese authorities have offered various explanations. For example, China claims that the slow issuance ofimport permits is intended to limit smuggling. U.S. exporters acknowledge problemsassociated with smuggling, but prefer solutions that don't infringe on the timely handling ofTRQ allocations. Also, China claims that public identification of enterprises that have appliedfor or received TRQ allocations would violate commercial confidentiality, a contention thatU.S. authorities dispute.

The U.S. Government and the WTO have set up mechanisms to monitor and review China's progress in implementing its trade commitments. China's Protocol of Accession tothe WTO included the establishment of a Transitional Review Mechanism (TRM) whichdetails a procedure for reporting on and evaluating the implementation by China of its WTOcommitments. The United States used the TRM, in September 2002, to submit an extensivelist of questions to China via the WTO's reviewing bodies. The list of questions identifiedmany of the disputed trade practices highlighted above. To date, the Administration hasfollowed a course of pursing bilateral discussions to remedy non-commitment, rather thanmultilateral dispute settlement. However, the potential use of the WTO dispute settlementmechanism remains a viable tool for resolving disagreements over implementation issues andmaintains steady pressure on China to meet its obligations.

In late July 2002, Agriculture Secretary Veneman spent 3 days in China to discuss these issues, and appointed USDA Senior Trade Counsel David Hegwood to lead a working groupon biotechnology with China. Administration officials are continuing to meet with theirChinese counterparts in efforts to resolve problems.

USTR chairs the Trade Policy Staff Committee (TPSC) Subcommittee on China WTO Compliance. The TPSC works closely with the various U.S. government departments andtheir agencies involved in international contacts with U.S. industries operating in China aswell as with Chinese government officials. During his February 2003 visit to China, U.S.trade Representative Robert Zoellick, expressed strong concern over non-compliance but alsoexpressed optimism about China's willingness to engage in discussions intended to resolvethe many issues surrounding its WTO trade commitments.

Role of Congress

Given the huge market potential of China, and the importance of adherence to trade commitments, Congress will be closely monitoring developments in China's implementationof its WTO obligations. Under Section 421 of the U.S.-China Relations Act of 2000 ( P.L.106-286 ), the USTR is required to report annually to Congress on compliance by China withcommitments made in connection with its accession to the WTO, including both multilateralcommitments and any bilateral commitments made to the United States. During the 108thCongress, congressional oversight and consultation with the Administration about China'scompliance with its WTO commitments will be the major vehicles for Members to monitordevelopments and express their views on the issues.

For More Information

CRS Report RS21292(pdf) , Agriculture: U.S.-China Trade Issues .

CRS Report RS20169, Agriculture and China's Accession to the World Trade Organization.

CRS Electronic Trade Briefing Book, China's Accession to the WTO.

Gale, Fred. China Corn Exports: Business a Usual, Despite WTO Entry , FDS-1202-01, Economic Research Service, USDA, December 2002. http://www.ers.usda.gov/publications/fds/dec02/fds1202-01/

Country-of-Origin Labeling (13)

Issue

The Farm Security and Rural Investment Act (FSRIA) of 2002 ( P.L. 107-171 ) soon will require many food stores to provide country-of-origin labeling (COOL) on fresh fruits,vegetables, red meats, seafood, and peanuts. Proponents of COOL argued that U.S.consumers have a right to know the origin of their food, particularly during a period whenfood imports are increasing, and will continue to increase under both existing and future tradeagreements. Such information is particularly important to consumers whenever specifichealth and safety problems arise that may be linked to imported foods, proponents add. Theycite, as examples, the 1997 hepatitis outbreak linked to strawberries grown in Mexico, andconcerns about the safety of some foreign beef due to outbreaks of bovine spongiformencephalopathy (BSE or "mad cow disease").

Critics of the new law, however, argue that such labeling does not increase public health protection by telling consumers which foods are safer than others: all food imports alreadymust meet equivalent U.S. food safety standards, which are enforced vigorously by U.S.officials at the border and overseas. In fact, they note, several serious outbreaks of food borneillness in recent years have been linked to contaminants in perishable agriculturalcommodities produced in the United States, including the bacteria e. coli 0157:H7 and salmonella . Scientific principles, not geography, must be the arbiter of safety, they add. Somecritics are urging the 108th Congress to revisit the new labeling law, partly on the grounds thatimplementation will be costly and hinder rather than help U.S. producers' competitiveadvantage. Proponents maintain that the expected benefits to U.S. farmers, ranchers, andconsumers will outweigh implementation and compliance costs.

Background and Analysis

Federal law has long required most imports, including many foods, to bear labels informing the "ultimate purchaser" of their country of origin. The 2002 farm law (FSRIA)extends new COOL requirements to ground and muscle cuts of beef, lamb and pork,farm-raised and wild seafood, peanuts, and fresh and (fresh frozen) fruits and vegetables -which were among the raw agricultural products generally exempt from the existing COOLrequirements. Starting September 30, 2004, supermarkets and many other food stores mustinform consumers of these products' country of origin "by means of a label, stamp, mark,placard, or other clear and visible sign on the covered commodity or on the package, display,holding unit, or bin containing the commodity at the final point of sale to consumers." Thelaw exempts the products if they are ingredients of processed foods, and it also exempts foodservice establishments, such as restaurants and cafeterias.

USDA's Agricultural Marketing Service (AMS) issued guidelines for the prescribed voluntary phase of COOL on October 8, 2002; rulemaking on the mandatory phase isscheduled to begin in April 2003. The voluntary guidelines have reignited debate over anumber of policy issues, among them:

Will COOL provide U.S.-raised products with a competitive advantage over foreign products, because U.S. consumers can more easily identify and choose freshfoods of domestic origin? Or will industry (including on-farm) compliance costs outweighany potential benefits - particularly for beef, lamb, and pork producers competing withpoultry, whose products are not subject to COOL?

As the AMS voluntary guidelines imply, will "every person" whoprepares, stores, distributes, or supplies the covered commodities for retail sale - extendingback to the farm or ranch - have to maintain detailed records, and even track the identity ofeach animal (or plant) from birth (harvest) through retail sale because they might be criminallyor at least contractually liable for non-compliance? Or will record-keeping be far lessonerous, partly because modern production and marketing methods already incorporate manyaspects of this information?

Is the AMS preliminary estimate of recordkeeping costs, at $2 billion in the first year, evidence of a huge burden industry is facing (or as some critics suggest, aninsufficient burden), or are the figures grossly exaggerated, as COOL supportersbelieve?

Is the new COOL law deliberately intended to increase costs for importers - thereby undermining U.S. efforts to break down other countries' trade barriers,and violating existing U.S. trade obligations? Or is it simply extending to raw products thesame U.S. requirements that almost all other imported consumer products, from automobilesto most other foods, already must meet - and that many foreign countries themselves nowimpose on food and farm products? To what extent is COOL comparable to EU proposalsfor mandatory labeling of GE products?

Role of Congress

Some food industry and producer trade associations are calling for a re-examination of the new COOL requirements, and its impacts on industry costs and competitiveness. A fewhave suggested that the law should be changed or even repealed. As of early March 2003, nosuch legislation had been introduced. Some observers anticipate that Congress will at leastbe asked to hold hearings on the matter. At the same time, those who pressed for passage ofthe law can be expected to defend its necessity and efficacy.

For more information

CRS Report 97-508, Country-of-Origin Labeling for Foods .

Agricultural Exports to Cuba (14)

Issue

U.S. policy is to exempt commercial sales of agricultural and medical products from U.S. unilateral sanctions imposed on foreign countries, subject to specified conditions andprohibitions. Debate continues, though, among policymakers on the scope of restrictions thatshould apply to agricultural sales to Cuba.

Background and Analysis

The Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) codified the lifting of U.S. sanctions on commercial sales of food, agricultural commodities, and medicalproducts to Iran, Libya, North Korea, and Sudan, and extended this policy to apply to Cuba. TSRA's provisions place financing and licensing conditions on sales to these countries. Those applicable to Cuba are more restrictive than for the other countries, and are permanent. Including Cuba in this exemption to U.S. unilateral sanctions policy generated the mostcontroversy. Proponents argued that the prohibition on sales to Cuba (a sizable nearbymarket) harmed the U.S. agricultural sector, and that opening up limited trade would be oneway to pursue a "constructive engagement" policy. Opponents countered that such anexemption would undercut current U.S. policy designed to keep maximum pressure on theCastro government until political and economic reforms are attained. In the compromiseadopted by conferees, opponents succeeded in inserting the permanent restrictive provisionsthat apply uniquely to Cuba.

Cuban officials initially stated that no purchases would be made under TSRA's conditions; however, food stock losses due to devastation caused by a hurricane in late 2001prompted a reversal. This development, and Cuba's strategy to use this issue as one way toremove the longstanding U.S. embargo, led to $170 million in cash purchases of U.S. farmcommodities and food products from late 2001 through 2002. Another $50 million in salesmade at a trade fair last fall will be shipped through April 2003.

The President, on May 20, 2002, in a major Cuba policy speech reiterated his opposition to any repeal of the prohibition on private financing of agricultural sales, stating it "would justbe a foreign aid program in disguise, which would benefit the current regime." Bush statedhe would veto legislation that relaxes the embargo in any way until the Cuban governmentintroduced reforms. The Administration has held to this stance, and with its allies inCongress, succeeded in dropping provisions added to the 2002 farm bill and FY2003 spendingbills that would have repealed the prohibition on the use of private financing on agriculturalsales to Cuba and limited Treasury's ability to enforce TSRA's trade and travel restrictions,respectively.

Role of Congress

Proposals that some Members of Congress have indicated they will pursue in the 108th Congress include: streamlining or eliminating U.S. export licensing and reportingrequirements, shipping restrictions, and other bureaucratic regulations to make it easier to sellfood, medicine, and medical products to Cuba; expanding the types of products that may besold to include agricultural equipment and supplies; and permitting private (but not public)financing for commercial transactions (e.g., food sales) now allowed on a cash-only basis. Two bills introduced in the 108th Congress ( H.R. 187 and S. 403 )reflect some of these proposals.

For More Information

CRS Issue Brief 10061, Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation, updated regularly.

CRS Electronic Briefing Book, Trade, Cuba Sanctions .

U.S. - Brazil WTO Cotton Dispute (15)

Issue

In September 2002, Brazil initiated a case at the WTO against certain aspects of the U.S. cotton program. Subsequent consultations between the United States and Brazil in Decemberand January failed to resolve the dispute. Continuation of the WTO dispute settlementprocess could lead to a "final" panel decision for or against the complaining country. Resolution of the case in Brazil's favor could result in WTO recommendations concerningimplementation of U.S. cotton program provisions. Non-compliance with such provisions onthe part of the United States could result in compensation or possible limited trade sanctions.

The outcome of this case is also critical to future interpretation of WTO farm subsidy rules since it represents the first formal challenge to the protection otherwise affordeddomestic commodity support programs under the "peace clause" provision (see below) of theWTO Agreement on Agriculture.

Background and Analysis

Brazil argues that the United States is supplying domestic and export subsidies to its cotton sector in excess of its WTO commitments; that the subsidies provided to U.S. cottongrowers have led to significant overproduction and a huge increase in U.S. cotton exports; andthat the larger world cotton supplies have contributed to a steep decline in world cotton pricesand have caused serious injury to Brazilian cotton exporters. U.S. trade officials argue thatthe subsidies provided to U.S. cotton growers have been within the allowable WTO limits andare consistent with WTO obligations.

The key to Brazil's case against U.S. domestic cotton subsidies is its argument that the United States is no longer exempt from WTO dispute proceedings under Article XIII, theso-called "peace clause," of the WTO's Agreement on Agriculture. Article XIII(b) exemptsdomestic support measures that comply with the Agreement on Agriculture's requirementsfrom being challenged as illegal subsidies through dispute settlement proceedings, as long asthe level of support for a commodity remains at or below the benchmark 1992 levels. Brazilargues that U.S. cotton subsidies were about $2 billion in 1992 (other sources suggest a figurecloser to $1.9 billion) compared with over $4 billion in 2001.

Brazil also argues that both the "Step-2" provisions of the U.S. cotton program and the favorable terms provided under U.S. export credit programs function as export subsidies andare inconsistent with U.S. WTO obligations regarding export subsidies. (Step 2 payments aremade to U.S. cotton users and exporters when U.S. cotton prices are higher than world prices.) The United States notifies to the WTO any Step-2 payments as "amber" box (trade distorting)domestic support payments and not as export subsidies. U.S. trade officials also contend thatU.S. export credit program operations are consistent with WTO obligations.

U.S. trade officials argue that the immunity granted by the peace clause is important, however, and that even if a country is no longer in compliance with the peace clause, it is stillincumbent on the complaining party to prove there has been injury. Brazil claims that injuryto its economy due to low cotton prices, measured as the sum of individual negative impactson income, foreign trade revenue, fiscal revenues, related services (transportation and ginning)and employment, exceeded $600 million in 2001 alone.

Once a WTO dispute settlement process is initiated, it must adhere to a disciplined time frame that will produce a final panel decision within one year without appeal or 15 monthswith appeal. However, the WTO process welcomes an "out-of-court" settlement between theprincipal parties at any time during this process. The 12-month WTO dispute settlementperiod was initiated on December 3, 2002, when Brazil and the United States held their firstconsultations in Geneva to discuss the dispute over U.S. cotton subsidies.

The consultations were unsuccessful and on February 19, 2003, Brazil requested the establishment of a dispute panel to rule on its complaint. In accordance with WTO rules, theUnited States, as potential defendant, successfully objected to formation of the panel. However, Brazil has announced its intentions to request the formation of a panel a secondtime at the March 18 meeting of the WTO Dispute Settlement Body. Second requests areapproved automatically. The panel would be formed within 45 days (by May 2). Onceformed, the panel has 6 months to hold hearings and gather testimony before issuing its finalreport to both parties. If the panel decides that the disputed policy measure does break a WTOagreement or an obligation, it recommends that the measure be made to conform with WTOrules. The panel may suggest how this is to be done.

Either side can appeal a panel's ruling, although appeals have to be based on points of law such as legal interpretation-they cannot reexamine existing evidence or examine newevidence. Once the case has been decided, the losing "defendant" is to bring its policy intoline with the ruling or recommendations. If complying with the recommendation within "areasonable time" proves impractical, Brazil and the United States would have to enter intonegotiations in order to determine mutually-acceptable compensation (e.g., tariff reductionsin areas of particular interest). If the two sides are unable to agree on compensation, thecomplaining side may ask the Dispute Settlement Body for permission to impose limited tradesanctions against the other side.

Role of Congress

Given the importance of cotton in the U.S. agricultural economy, Congress will be closely monitoring developments in the U.S.-Brazil cotton dispute. Under fast track, or TradePromotion Authority, legislation, Congress will be engaged in consultations with theAdministration on negotiations of the Free Trade Agreement for the Americas and theagriculture negotiations in the WTO. Such consultations will be a major vehicle for Membersto monitor developments in this dispute and the negotiating issues it raises.

For More Information

WTO. "Settling Disputes." Chapter 3, Trading into the Future: Introduction to the WTO , 2ndEd., March 2001, pp. 38-42.

http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp0_e.htm

For listings of WTO Dispute Cases see:

http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm

For text on the WTO Agreement on Agriculture see:

http://www.wto.org/english/docs_e/legal_e/14-ag.pdf

For text on the WTO Agreement on Subsidies and Countervailing Measures see:

http://www.wto.org/english/docs_e/legal_e/24-scm.pdf

U.S.- Canada Wheat Trade Dispute (16)

Issue

U.S. trade officials contend that Canadian wheat trading practices, particularly the export practices of the Canadian Wheat Board (CWB), are inconsistent with Canada's WTOobligations and disadvantage U.S. wheat exporters in Canadian and international markets. Canada maintains that Canadian import practices and the CWB wheat export practices complyfully with international trade rules and its WTO obligations.

Concern over alleged unfair trade practices has led to numerous investigations and charges by U.S. trade officials about the wheat trading practices of Canada and the CWB. Arecent finding under a countervailing duty investigation by the U.S. International TradeCommission (ITC) resulted in the imposition of preliminary punitive duties being levied onCanadian durum and hard red spring wheat imports. Perhaps more significantly, the UnitedStates recently initiated a WTO trade dispute settlement procedure against the wheat tradingpractices of Canada and the CWB. Successful resolution of this dispute in favor of the UnitedStates could result in greater competitiveness for U.S. wheat vis-a-vis Canadian wheat ininternational markets and in U.S. wheat having improved access to the Canadian market. Itcould also establish precedent under WTO dispute settlement procedures for regulating theactivities of state trading enterprises.

Background and Analysis

In accordance with Canadian law, the CWB has the exclusive right to purchase and sell Western Canadian wheat (durum and nondurum) and barley for export and for domestichuman consumption. While Canadian farmers are free to choose the crops that they grow eachyear, all Canadian producer sales of wheat and barley must be to the CWB. Critics argue thatsuch monopsony (single buyer) power gives the CWB extraordinary market power,particularly in the North American markets for durum and hard spring wheat.

Representatives of the U.S. wheat industry, as well as U.S. agriculture and trade officials, also complain that the CWB's "monopoly" control over Canada's wheat trade permits it topractice discriminatory pricing in international markets, thereby gaining unfair competitiveadvantage over other wheat exporters. Because the CWB does not publicly report the termsand conditions of individual sales these charges have been difficult to prove. This allegedlack of transparency by the CWB has long been the subject of criticism in the United States. The CWB does not engage in wheat imports. However, according to U.S. trade officials, theGovernment of Canada has certain rules and regulations in place that discriminate againstimported grains at grain elevators and within Canada's rail transportation system.

These multiple allegations against Canadian wheat trading practices have led to a series of investigations by U.S. agriculture and trade authorities at various levels. In October 2000,the U.S. Trade Representative (USTR) initiated an investigation under Section 301 of theTrade Act of 1974 concerning the acts, policies, and practices of the CWB. The investigationwas in response to a petition filed by the North Dakota Wheat Commission which chargedthat certain wheat trading practices of the Government of Canada and the CWB areunreasonable, and that such practices burden or restrict U.S. commerce.

In April 2001, the ITC initiated an investigation (No. 332-429, under Section 332(g) of the Tariff Act of 1930 as amended) which culminated in a December 2001 report thatidentified several features of the CWB which, as a State monopoly, afford it "unfair" marketadvantages over U.S. wheat exporters. Several members of Congress followed up on the ITCreport with a January 21, 2002 letter to the USTR highlighting the key findings of the ITCreport and recommending that the CWB be held accountable for its alleged unfair tradepractices.

In October 2002, the ITC initiated a countervailing duty and antidumping investigation on durum and hard red spring wheat imports from Canada. The ITC investigation was inresponse to petitions filed by the North Dakota Wheat Commission, the Durum GrowersTrade Action Committee, and the U.S. Durum Growers Association. U.S. millers and pastamakers dispute the allegations of price discounts on Canadian wheat and have expressedconcern over potential trade restrictions that might limit their access to high quality grainsupplies. On March 4, 2003, the U.S. Department of Commerce issued a preliminary findingof illegal CWB transportation subsidies and loan guarantees in the countervailing dutyinvestigation, and imposed a provisional 3.94% punitive duty on Canadian durum and hardred spring wheat imports. A final determination is due July 15. In May, the CommerceDepartment is scheduled to decide whether to impose anti-dumping duties as well.

In December 2002, U.S. trade officials submitted a request for dispute settlement consultations with Canada via the Dispute Settlement Body of the WTO. U.S. trade officialshave insisted that WTO trade provisions governing the trade behavior of state tradingenterprises require them to undertake trade in a manner consistent with the general principlesof non-discriminatory treatment as prescribed in the GATT 1994 (Article XVII). Consultations were held on January 31, 2003. During the consultations Canada expressed nowillingness to make any modifications to its wheat trading practices. On March 6, the USTRannounced the intention to seek formation of a WTO dispute settlement panel to examine thewheat trading practices of the Government of Canada and the CWB. Once a WTO disputesettlement panel is established, it must adhere to a disciplined time frame that will producea final panel decision within one year without appeal or 15 months with appeal.

Role of Congress

Given the importance of wheat in the U.S. agricultural economy, Congress will be closely monitoring developments in the U.S.-Canada wheat dispute and the ITCcountervailing duty and antidumping investigations on durum and hard red spring wheatimports from Canada. Congress will also be closely following WTO dispute settlement in thiscase.

For More Information

U.S. International Trade Commission. Wheat Trading Practices: Competitive Conditions between U.S. and Canadian Wheat , Publication 3465, report on investigation No. 332-429under Section 332(g) of the Tariff Act of 1930 as amended, December 2001.

ftp://ftp.usitc.gov/pub/reports/studies/pub3465.pdf

Economic Research Service, USDA. "The Canadian Wheat Board," Canada briefing room. [Http://www.ers.usda.gov/Briefing/Canada/wheatboard.htm]

The U.S. dispute settlement case against the Canadian Wheat Board (DS276) is found under the listings of WTO Dispute Cases at: http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm

Meat and Poultry Trade Disputes (17)

Issue

The United States is one of the world's leaders in meat and poultry trade. Meat and poultry products are among the fastest growing components of U.S. agricultural exports. However, at the same time that the industries' reliance on foreign markets is increasing, somecountries have instituted barriers that have disrupted exports, threatened future growth, andheightened trade tensions.

Background and Analysis

The United States is the world's leading producer, consumer, and importer of beef, and the second leading exporter, now holding 20% or more of the world export share, accordingto USDA. The United States is the third leading pork producer, consumer, importer andexporter, also with an approximately 20% market share. It is also the leading consumer,producer, and exporter of poultry meat, dominating global exports with about 45% of marketshare. Total red and poultry meat exports experienced strong annual gains for 16 yearsthrough 2001, reaching nearly 5 million metric tons (MMT) valued at $7.4 billion, beforedeclining in 2002. Both red meat and poultry meat exports are expected to begin increasingagain in 2003, USDA reports.

USDA analysts note that, while trade prospects look brighter, a number of uncertainties could hamper foreign (and domestic) demand, including sluggish economic conditions, andanimal disease and food safety concerns in some markets, for example, beef demand in Japanwas disrupted when that country in September 2001 reported its first cases of bovinespongiform encephalopathy (BSE or "mad cow disease"). Adding to these uncertainties area number of existing or impending foreign-imposed import barriers in key export markets,which U.S. trade officials are working to reduce or eliminate. Following are various tradedisputes of concern to the meat and poultry industries.

Russia. U.S. agriculture groups have expressed alarm over Russia's announcement that it will impose import quotas on poultry andtariff-rate quotas on beef and pork, all effective April 1, 2003. U.S. exports of poultry toRussia, by far our largest poultry customer, already had declined by approximately a third in2002 after Russia banned them effective March 10, 2002, ostensibly out of concerns aboutproduct safety. U.S. interests charged that Russia was seeking to protect its domesticproducers and also to retaliate against newly imposed U.S. tariffs on imported steel. Afterextensive negotiations, U.S. and Russian officials reached an agreement whereby Russianveterinarians would re-inspect and certify U.S. exporting plants by June 1, 2003. However,that process bogged down after the Russians failed many U.S. plants and no recent inspectionshave been scheduled, USDA reported. Russia's new import quota for poultry is expected tobe 1.64 billion pounds annually, of which the United States would receive 1.22 billionpounds. In 2001, the United States exported a record 2.3 billion pounds of broiler productsto Russia, USDA added. Although the United States does not sell much pork or beef toRussia, new tariff-rate quotas on these products would effectively block any future U.S.growth there, industry officials contend. In a February 14, 2003, letter, two dozen U.S.agricultural organizations called on the Administration to self-initiate a Section 301investigation, which could lead eventually to trade retaliation.

Mexico. U.S. pork and poultry exports to Mexico are both jeopardized by developments in the wake of the scheduled January 1,2003, end to import duties for those and other agricultural products under the North AmericanFree Trade Agreement (NAFTA). In late January, the Administration announced anagreement on poultry that establishes a 6-month safeguard tariff-rate quota of 50,000 MT onU.S. chicken leg quarters with an over-quota tariff of 99%. The Administration is continuingto negotiate for a longer-term agreement to head off an ongoing Mexican safeguardinvestigation that could result in tariffs of up to 240% ( Inside U.S. Trade , January 24, 2003;various USDA attache reports). Mexico, the United States' second largest pork market, alsolaunched on January 7, 2003, an anti-dumping investigation of U.S. pork imports. Preliminary findings, expected as early as July 2003, could result in high duties and depressU.S. exports there. An anti-dumping case also is under way for beef, and a safeguardinvestigation could begin on beef cattle and breeding stock imports as well, Inside U.S. Trade has reported.

European Union. Among a number oflongstanding trade disputes with the European Union is the EU's ban, in effect since 1989,on the import of U.S. beef produced with hormones. In 1997, the WTO ruled in favor of theUnited States that the EU cannot ban, without scientific justification, beef produced withhormones. The WTO authorized U.S. retaliation of $117 million in prohibitively high U.S.duties on a variety of EU agricultural imports. The EU offered to compensate the UnitedStates by enlarging the 20,000 ton quota for non-hormone treated beef in lieu of lifting theban. The United States has maintained that compensation, unless contingent on removing theban, is unacceptable.

Japan. The United States and other countries (Australia, New Zealand, and Canada) that export beef to Japan anticipate thatJapanese tariffs on frozen and chilled beef imports will be increased sometime in 2003 to 50%from their current 38.5%. Under so-called "snapback" tariff provisions of the WTO traderules, Japan can impose the higher tariffs if imports increase by 117%. Japan is expected touse, as the base period for calculating this increase, the time when Japanese consumption wasunusually low due to the BSE outbreaks (see above). The higher tariffs could remain in effectuntil March 31, 2004, according to USDA officials.

Role of Congress

Generally, Congress conducts vigorous oversight over the Administration's conduct of trade policy. On the Russian meat and poultry issue, for example, many Members ofCongress have signed onto letters to the President urging him to be more aggressive inresolving the problem. For example, Section 407 of the Trade and Development Act of 2000( P.L. 106-200 ) directs the U.S. Trade Representative (USTR) periodically to revise the list ofproducts subject to trade retaliation, on the premise that rotating products subject to higherduties will expose a broader swath of an offending country's economy to penalties, therebycreating more pressure for compliance. This so-called "carousel" provision was enactedpartly out of frustration over the EU beef hormone and other disputes, but the USTR so farhas not employed the provision. Observers attributed USTR's restraint in using the carouselto U.S. concerns about possible EU retaliation against the United States in the U.S.-EUForeign Sales Corporation dispute in which a WTO panel found the United States hadviolated WTO rules with its tax subsidies to off-shore U.S. business entities. An EUchallenge to the carousel provision in WTO dispute settlement was not pursued.

Lawmakers also have withheld, or threatened to withhold, support for other Administration trade initiatives. The Administration has been seeking congressional supportfor granting permanent "normal trade relations" (PNTR) status to Russia, which it failed toobtain in 2002 largely due to the poultry dispute. Under the Jackson-Vanik amendment to theTrade Act of 1974 P.L. 93-618 , section 410, NTR status for Russia must be renewed on ayear-to-year basis, but the Administration wants to make it permanent so that the UnitedStates can take full advantage of any benefits gained if and when Russia joins the WTO.

Sweetener Disputes with Mexico (18)

Issue

Mutual recognition that NAFTA sugar provisions have not worked, prompted U.S. and Mexican negotiators to intensify efforts in mid-2002 to resolve two longstanding sweetenertrade disputes. Talks remain stalled on two key issues-market access for Mexican sugar inthe U.S. market and market access and sales of U.S. high fructose corn syrup in Mexico.

Background and Analysis

The United States imports sugar to cover the balance of its needs that the domestic sugar sector cannot produce - about 12% of consumption. The level of imports affects the domesticsupply, and in turn, U.S. sugar prices and the functioning of the domestic sugar program. U.S.imports of sugar from Mexico are governed by NAFTA provisions, which Mexico, seekingadditional access, began to dispute starting in 1997. Mexico's sugar industry, concerned thatimports of a competing sweetener - high-fructose corn syrup (HFCS) - from the United Stateswere increasingly displacing sales of Mexican sugar in its own market, succeeded inpersuading its government in 1998 to impose high anti-dumping duties on imports ofU.S.-produced HFCS. In response, the United States challenged these duties, takingadvantage of trade dispute mechanisms under both NAFTA and WTO.

Negotiations on Mexico's sugar access did not begin in earnest until mid-2000, just before Mexico became eligible under NAFTA's "sugar side letter" to ship much more sugarduty free to the U.S. market than allowed to enter in earlier years. These negotiations faltered,as U.S. and Mexican negotiators disagreed over just how much sugar Mexico actually couldship north. Their disagreement centered on which version of NAFTA governed this issue. U.S. negotiators based their position on the sugar side letter struck in last minute talksbetween the U.S. Trade Representative and his Mexican counterpart in November 1993, justbefore the House voted to approve NAFTA. Mexican negotiators based their stance on thesugar provisions found in the NAFTA agreement concluded in August 1992 and signed byeach country's president that December. Relatedly, the NAFTA and WTO dispute panelsissued successive decisions questioning the process Mexico followed to impose its HFCSduties and called for changes. Mexico did not respond until April 2002, when it announcedit would replace its anti-dumping duties with a quota on HFCS imports equal in quantity tothe U.S. quota for Mexican sugar.

Legislation passed by Mexico's Congress on January 1, 2002, and still in effect, imposed a tax on soft drinks containing corn syrup but not sugar. This law has eliminated much of themarket for U.S. HFCS imports to Mexico and jeopardized the viability of two U.S. companieslocated in Mexico that manufacture HFCS from U.S. corn. The U.S. corn and corn refiningsectors viewed this action as a step back in negotiating a resolution to the HFCS dispute andhave pressed Administration officials to persuade Mexican authorities to remove this tax. Subsequently, negotiators from both sides agreed to lay aside whether or not the sugar sideletter applies, in favor of pursuing negotiations to arrive at a comprehensive, mutuallyacceptable sweetener agreement.

In July-September 2002, negotiators exchanged details of a prospective agreement. Though both sides appear to agree on some issues, differences remain on the length of aprospective agreement (temporary or permanent) and how to handle over-quota Mexicansugar exports to the U.S. market. The U.S. sugar industry seeks provisions that would applybeyond 2008 when sugar trade under NAFTA is scheduled to be completely liberalized, andthat would restrain Mexican over-quota shipments. How these are resolved, in turn, willlikely influence the terms reached on future U.S. HFCS sales to Mexico. Some observe thatMexico's interest in reaching an agreement in the short term has diminished, due to the smallquantity of Mexican sugar available for export this year and the political dynamics associatedwith upcoming mid-term congressional elections in July. Also, with the Mexican Congresshaving adjourned in December 2002 without dropping the tax on soft drinks sweetened withcorn syrup-viewed by the U.S. side as necessary to reach a comprehensiveagreement-prospects for a quick resolution have faded.

Role of Congress

Members of Congress that represent the sugar and corn sectors continue to monitor developments in U.S.-Mexican sweetener negotiations. In letters to Administration officials,some have called for more movement in these talks. Most recently, on December 16, 2002,lawmakers called on the Administration to work toward an immediate conclusion to thenegotiations, expressing particular concern about the growing economic fallout of noagreement on the U.S. corn and corn refining sectors.

For More Information

CRS Issue Brief IB95117, Sugar Policy Issues ("Sweetener Disputes with Mexico").

Appropriations for Agricultural Export and Food Aid Programs (19)

Issue

Congress is currently considering FY2004 appropriations for USDA's international activities. At issue are funding levels for agricultural export subsidies, export marketdevelopment programs, export credit guarantees, and foreign food aid. Congress and theAdministration have been at odds over the use of Commodity Credit Corporation (CCC)funds to finance food aid programs and over the Administration's decision in 2003 to beginphasing out food aid based on surpluses. WTO agriculture negotiations could result inrestrictions on agricultural export and credit guarantee programs, the preservation of whichthe Trade Act of 2002 lists as an objective for the WTO agriculture negotiations. Anychanges in these programs resulting from a trade agreement would ultimately be subject tocongressional scrutiny under fast-track procedures for considering trade agreements.

Background and Analysis

The 2002 farm bill ( P.L. 107-171 ) authorizes USDA to operate a number of programs to promote U.S. agricultural exports or to provide foreign food aid. The Foreign AgriculturalService operates USDA's international programs. These programs include: agriculturalexport subsidies, export market development, export credit guarantees, and foreign food aid. Legislative authority for most of these programs now extends to the end of 2007. Exportsubsidies, but not other types of export and food aid programs, are subject to reductioncommitments agreed to in the 1994 Uruguay Round Agreement on Agriculture (URAA). On-going WTO agriculture negotiations are considering new rules and disciplines for exportcredit programs and food aid based on surpluses.

U.S. agricultural export subsidies include the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). Market promotion programs include the MarketAccess Program (MAP) and the Foreign Market Development or "Cooperator" Program(FMDP). Considered to be non-trade distorting, programs to promote exports are exemptfrom Uruguay Round reduction commitments. The FSRIA authorizes export credit guaranteesby USDA's Commodity Credit Corporation (CCC) of $5.5 billion worth of farm exportsannually, plus guarantees of an additional $1 billion for emerging markets through 2007.

The FSRIA also authorizes P.L. 480 Food for Peace programs and Food for Progress through FY2007. P.L. 480 Titles I (Trade and Development Assistance) and II (Emergencyand Private Assistance) are the main vehicles for U.S. foreign food aid. Food for Progress(FFP) provides commodities to developing countries and emerging markets that aredeveloping their private sectors. Another food aid program, Section 416(b), permanentlyauthorized in the Agricultural Act of 1949, provides surplus commodities for donationoverseas. The 2002 farm bill also established a new food aid program, the McGovern-DoleInternational School Feeding and Child Nutrition Program.

Some of these programs, notably food aid provided under P.L. 480 and the salaries and expenses of USDA's Foreign Agricultural Service (FAS), require annual appropriations. Other programs (food aid other than P.L. 480, export subsidies, export market development,export credit guarantees) are funded or guaranteed by USDA's Commodity CreditCorporation (CCC) and do not require line item appropriations. Congress is presentlyconsidering proposals in the President's budget transmitted to Congress on February 3, 2003for funding USDA export and food aid programs in FY2004. The President's budgetestimates that agricultural export and food aid programs would have a program value of $6.2billion. Of that amount, approximately $1.4 billion (for P.L. 480 and FAS) would requireauthorization of budget authority in an appropriations act; the rest would be funded by CCCborrowing from the Treasury.

The biggest item requiring authorization of budget authority is $1.185 billion requested for P.L. 480 Title II, the same as requested in FY2003. However, the President's budgetrequest for Title II is less than the amount appropriated in FY2003. The farm bill authorized$100 million of CCC funding for the McGovern-Dole school feeding program in FY2003. Beginning in FY2004, however, the program will be funded by appropriations and thePresident requested $50 million for McGovern-Dole in FY2004. The President's budgetenvisions $151 million of CCC funding for FFP. That program level is expected to provide the minimum 400,000 tons of commodities in FFP required by the 2002 farm bill.

The President's budget assumes a program level of $28 million in FY2004 for EEP. The farm bill, however, allows EEP spending of $478 million, which is the maximum allowedunder the World Trade Organization/Uruguay Round agreement on subsidy reductioncommitments. EEP is capped at $28 million in FY2003 by P.L. 108-7 , but for FY2004,unless Congress decides otherwise, USDA retains some flexibility to increase the level ofEEP subsidies.. For DEIP, the budget expects a program level of $57 million for FY2004, anincrease above the $36 million estimated for FY2003. The budget request assumes that theCCC will guarantees commercial financing of $4.2 billion of U.S. agricultural exports inFY2004. Consistent with the farm bill reauthorization of MAP, the budget provides for MAPfunding of $125 million in FY2004. The budget assumes the farm bill authorized level of$34.5 million for FMDP in FY2004.

Role of Congress

Following House and Senate Appropriations Committee deliberations, spending measures will be brought to the floor of each chamber. In addition to hearings andcongressional action on appropriations for USDA's international activities, severalcommittees have indicated that they will be carrying out oversight of the Administrations'simplementation of the export and food aid programs authorized in the 2002 farm bill. SomeUSDA agricultural export and food aid programs-especially USDA's export credit guaranteeprogram-could be affected by agreements reached in WTO agriculture negotiations.

Many in Congress are closely following the WTO agricultural negotiations and theconsideration being given to proposals to tighten multilateral restrictions on U.S. export creditprograms which guarantee, on average, private financing of around $3 billion annually ofU.S. agricultural exports. Under provisions established by the Trade Act of 2002 ( P.L.107-210 ), Congress and the Administration will be consulting on these negotiations and theirimplications for legislatively authorized programs.

For More Information

CRS Issue Brief IB980-06, Agricultural Export and Food Aid Programs .

CRS Report RL31301 , Appropriations for FY2003: U.S. Department of Agriculture and Related Agencies (see section on "Agricultural Trade and Food Aid").

CRS Report RS21425, The Administration's FY2004 Budget Request for the U.S. Department of Agriculture (USDA) (see section on "Agricultural Trade and Food Aid").

CRS Report RS20285, Agricultural Export Subsidies, Export Credits, and the World Trade Organization .