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IB10077: Agricultural Trade Issues in the 107th Congress Charles E. Hanrahan, Remy Jurenas,
and Geoffrey S. Becker May 25, 2001 CONTENTS
The 107th Congress will consider and seek to influence trade issues with implications for the U.S. agricultural sector. Trade in agricultural commodities and food products affects farm income and rural employment, and it also generates economic activity beyond the farm gate. With agricultural export sales accounting for one-quarter of farm income, policymakers view U.S. efforts to develop market opportunities overseas as vital to the sector's financial health. Decisions taken by the Bush Administration, and actions taken by Congress, thus will affect the outlook for agricultural trade. U.S. agricultural exports are projected to improve in FY2001. Most farm groups and agribusinesses, and their supporters in Congress, though, are concerned with the pace of recovery. Many believe that the sector's future prosperity depends partly on U.S. trade policies that: (1) aggressively reduce foreign-imposed barriers to U.S. farm products, (2) hold other countries accountable for commitments they have already made in existing trade agreements, (3) resolve festering disputes with major trading partners, and (4) fully use U.S. Department of Agriculture (USDA) export and food aid programs. Other groups, concerned about the lack of progress in opening new markets, have pressed for restrictions on agricultural imports. Congress this year is expected to debate whether to grant the President fast track or trade promotion authority (TPA) to negotiate trade agreements, and on what terms. Many commodity and food industry groups favor such action, arguing it would give U.S. trade negotiators greater credibility and facilitate the passage of legislation to implement future trade agreements. These include negotiations on liberalizing trade in agriculture and other sectors in the World Trade Organization (WTO), in the regional Free Trade Area of the Americas (FTAA), and in the free trade agreements with Chile and Singapore. Congress likely will soon take up trade agreements already negotiated with Jordan and Vietnam, which contain agricultural provisions. Congress is following multi-lateral talks finalizing the terms of China's membership in the WTO to ensure that bilaterally negotiated tariff reductions and increased U.S. access to the Chinese market for U.S. agricultural products are secured. Members and key committees are monitoring Administration efforts to resolve continuing trade disputes with the European Union (EU), the strategies pursued by the Administration in WTO and FTAA negotiations, and ensure that negotiators consult with them on agricultural provisions as negotiations proceed. Congress also is likely to follow how the Administration implements trade laws passed last year. Some advocate the use of the "carousel provision" to press the EU to settle agricultural trade disputes. Members opposed to certain restrictions on food sales to Cuba (now permitted as an exemption to U.S. embargo policy) have introduced bills to remove them. Other bills may address concerns about the treatment of genetically engineered crops and food products in international trade. Congress will consider FY2002 funding levels for USDA programs that assist and facilitate export shipments and food aid. The Agriculture Committees may consider changes to these programs in deliberations on the next farm bill. The House Agriculture Committee held a hearing on the Free Trade Area of the Americas (FTAA) negotiation on May 23, 2001. On May 3, 2001, H.R. 1700 was introduced in the House. The bill would provide authorization for an international food for education and child nutrition program to be carried out under Section 416(b) of the Agricultural Act of 1949. On April 25, 2001, the Senate Agriculture Committee held a hearing to review the trade title of the farm bill. The Administration's budget request for FY2002, released on April 9, 2001, proposes outlays of $2.4 billion to support a program level of $5.8 billion for USDA's international activities. The proposed program level for international activities is around $500 million less than estimated for FY2001. Almost all of the reduction is from foreign food aid programs. The budget proposes small increases for export market development. On March 27, 2001, Members of the World Trade Organization (WTO) reached agreement on a work program for their second year of negotiations on agricultural trade. Agreement followed completion of a "stock-taking" of proposals for agricultural trade liberalization presented during the first phase of negotiations which began in March 2000. The work program calls for three formal negotiating sessions in September and December 2001 and March 2002. Seven informal negotiating sessions will take place prior to the formal sessions. A "stock-taking" exercise would be conducted in March 2002, but no date has been fixed for completing the second phase. The President's initial budget document, Blueprint for a New Beginning, issued on February 28, 2001, identified two foreign food aid programs as candidates for reform. P.L. 480 Title I (concessional food aid loans) would be reviewed in terms of its continued effectiveness in meeting its market development objectives. Section 416(b) (commodity donations) would be reviewed to consider appropriate programmatic objectives and future availabilities of surplus commodities on which it depends. Agricultural exports are important both to farmers and to the U.S. economy. Production from more than one-third of harvested acreage is exported. The U.S. Department of Agriculture (USDA) estimates that in 1999, the share of production exported was 32% for wheat, 42% for rice, 33% for soybeans, 16% for corn, and 26% for cotton. About 15% of total U.S. agricultural production was exported; calculations indicate around 25% of gross farm income comes from exports. Exports further generate economic activity in the non-farm economy as well. According to USDA, each dollar received from agricultural exports in 1998 stimulated another $1.30 in supporting activities to produce those exports. Agricultural exports generated an estimated 808,000 full-time civilian jobs, including 488,000 jobs in the non-farm sector. In contrast to the continuing overall trade deficit, U.S. agricultural trade has consistently registered a positive, though recently declining, balance. Nearly every state exports agricultural commodities, thus sharing in export-generated employment, income, and rural development. In FY1999, the states with the greatest share of U.S. agricultural exports by value were California, Iowa, Nebraska, Kansas, Illinois, Texas, Minnesota, Washington, Indiana, and Wisconsin. These 10 states accounted for 56% of total U.S. agricultural exports. In addition, Arkansas, North Carolina, Ohio, Florida, Missouri, and South Dakota each shipped over $1 billion worth of commodities. 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. By FY1995, agricultural exports had recovered and reached a new peak of $54.6 billion. Agricultural exports reached nearly $60 billion in FY1996, but declined to $57.3 billion in FY1997, and fell further in FY1998 to $53.6 billion. Main reasons for the decline were continuing financial turmoil in East and Southeast Asian markets, and increased competition for corn, wheat, and soybeans in global markets. For the same reasons, exports fell again in FY1999 to $49 billion. They rose to an estimated $50.9 billion for FY2000. USDA's most recent forecast (issued February 22, 2001) projects FY2001 exports to rise to $53 billion. The commodity composition of U.S. agricultural exports has changed over time with exports of high value agricultural products now exceeding those of bulk commodities. Since FY1991, bulk commodities (grains, oilseeds, and cotton) have accounted for less than total non-bulk exports (intermediate products such as wheat flour, feedstuffs, and vegetable oils and consumer-ready products such as fruits, nuts, meats, and processed foods). In FY2000, high value agricultural exports accounted for 63% of the value of total agricultural exports. Many variables interact to determine the level of U.S. agricultural exports: income, population growth, and tastes and preferences in foreign markets; U.S. and foreign supply and prices; and exchange rates. U.S. agricultural export and food aid programs, domestic farm policies that affect supply and price, and trade agreements with other countries also influence the level of U.S. agricultural exports. 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 products include primarily tropical products (coffee, cocoa, bananas, rubber, and spices) that are not produced domestically. Imports that compete against domestic output include red meats (primarily beef), fruits and juices, vegetables and preparations, wine and beer, certain grains and feeds, certain oilseeds, sugar and related products, and dairy products. Agricultural imports have risen 72% over the last decade, from $22.7 billion in FY1991 to $39 billion in FY2000. Factors contributing to this growth in import demand include the extended U.S. economic expansion during this period, low commodity prices, the strong U.S. dollar which made imports cheaper, and the effects of trade agreements (particularly NAFTA). Non-competitive imports ($7.9 billion) accounted for one-fifth of all agricultural imports last year. The value of competitive imports was just over $31 billion (80% of the total). The U.S. average tariff on agricultural imports (12%) is much lower than the global average tariff (62%) imposed on similar imports. However, the United States along with other developed countries restricts the entry of "import-sensitive" commodities and food products in order to protect certain domestic producers. This is accomplished by using quotas and safeguard provisions that are permitted under WTO rules. U.S. tariff-rate quotas allow zero or low duty access for specified amounts of foreign beef, sugar, peanuts, and cotton, among other products. Imports above the applicable quota may enter, but face prohibitively high tariffs. This usually makes such imports uncompetitive in the U.S. market. Safeguards (involving the temporary use of higher tariffs and/or quotas) allow producers of an affected commodity or product sector additional time to adjust to increased import competition. Recently, the United States imposed safeguards on imports of lamb, mutton, and wheat gluten. Though a large share of agricultural imports compete against U.S. products, they do nevertheless generate economic activity in the U.S. economy. These imports provide additional income to, and increased employment at, businesses involved in food processing and in providing transportation, trade, and related services. For more information on both agricultural exports and imports, see U.S. Agricultural Trade: Trends, Composition, Direction, and Policy, CRS Report 98-253 (pdf). Although farm groups and agribusiness recognize that many world economic, farm production, political, and weather factors influence the level of U.S. agricultural exports, many believe that the agricultural sector's future prosperity also depends upon U.S. trade policies that: (1) aggressively reduce foreign-imposed barriers to U.S. farm products, (2) hold other countries accountable for commitments they have already made in existing trade agreements, (3) resolve festering disputes with major trading partners, and (4) fully use U.S. Department of Agriculture (USDA) export and food aid programs. A few U.S. farm groups are wary of pursuing these approaches. They 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 trade agreements. In fact, some of these U.S. groups (particularly those representing import-sensitive commodities) have pressed for more restrictions on foreign farm and food imports. Fast Track or Trade Promotion Authority Many agricultural and food industry interests are among the supporters of new "fast track" or, as redesignated by the Administration, trade promotion authority (TPA). Fast track or TPA refers to the special procedures Congress has adopted in the past for considering legislation to implement trade agreements with foreign countries. Under the fast track/TPA concept, the President consults regularly with Congress during the negotiating phase. Once an implementing bill that reflects a trade agreement's provisions is submitted, the time for debate is limited, and only an up or down vote on the bill, with no amendments, is permitted. Fast track authority, which expired in 1994, was most recently used to negotiate and implement the 1993 North American Free Trade Agreement (NAFTA) with Canada and Mexico and the multilateral 1994 Uruguay Round Agreements. Much of the agricultural community supports giving the President TPA on the grounds that it facilitates negotiations to open farm export markets that have long been hampered by import barriers, unfair subsidies by foreign competitors, and related problems. However, some agricultural groups argue that fast track stifled their past attempts to debate the potentially negative impacts of certain agricultural imports on U.S. producers or the perceived failure of some countries to live up to commitments they made under agreements. Efforts to revive fast track authority failed in the 105th Congress and were not vigorously pursued in the 106th Congress, in part because of opposition from those advocating the inclusion of protections for labor and the environment in future trade agreements. The timing for introduction and consideration of legislation to grant the President TPA is uncertain. The Bush Administration, and several leading trade-minded lawmakers, have made seeking fast track/TPA a top trade priority for the 107th Congress. They argue such authority would enable the United States to pursue a number of trade negotiations - bilateral, regional, and multilateral. Some have suggested that the President should be armed with TPA, or at least the assurance that Congress will enact it, as negotiations of the Free Trade Area of the Americas (FTAA) intensify. Others point to TPA as critical to ongoing WTO negotiations on agriculture and services and to a possible future and more comprehensive WTO round of multilateral trade negotiations. As debate intensifies, those seeking agriculture's renewed support will seek to demonstrate how past agreements have benefitted the sector overall. And, as in the past, agricultural groups are likely to press for language in a TPA bill that recognizes their industry's "special status" and/or makes special concessions to them. The Trade and Development Act of 2000 (P.L. 106-200) includes a list of explicit U.S. objectives for agriculture in WTO negotiations that, some believe, might provide a point of reference for language in a fast track/TPA bill. Members this session have introduced measures granting trade promotion authority to the President (S. 136; S. 137; S. 138; S. 599 and Title III in both H.R. 627 and S. 333). (For more information, see Fast-Track Trade Negotiating Authority in the CRS Electronic Trade Briefing Book, and Agriculture and Fast Track Trade Legislation, CRS Report 97-817.) Provisions affecting agricultural trade are found in four trade agreements that the 107th Congress is expected to consider. Attention also will focus on how U.S. negotiators handle agricultural trade issues as talks on the FTAA continue. While some commodity groups welcome the market openings these agreements are expected to provide, producers of import-sensitive commodities will carefully monitor and seek to shape those provisions that affect them. These producers will be most concerned about what negotiators include as rules of origin, safeguards against import surges, the transition periods agreed upon for market access, and the terms under which sanitary and phytosanitary rules are applied. The Clinton Administration in 2000 concluded trade agreements with Vietnam and Jordan. Negotiations on free trade agreements (FTAs) have begun with Singapore and Chile. The levels and growth in agricultural trade in recent years suggest that the agreement struck with Vietnam, and the one to be negotiated with Chile, could have more significance for U.S. agriculture than the other two. Vietnam. The United States runs a trade deficit in agricultural products with Vietnam. Imports of coffee accounted for more than half of U.S. agricultural imports ($199.8 million) in 2000. Other leading imports were other non-competitive products - cashew nuts and spices. U.S. farm exports to Vietnam were much lower at $52 million, led by sales of wheat, soybean meal, and nonfat dry milk. A 1998 World Bank study expects Vietnam under the agreement will take advantage of the much reduced most favored nation (MFN) tariff rates offered by the United States to increase exports of processed food products to the U.S. market. The agreement includes specific commitments by Vietnam to reduce its tariffs by 33-50% on a large number of U.S. food products over a 3-year period. The U.S. Department of Agriculture (USDA) expects the FTA will create opportunities for sales of snack foods, fresh and canned fruit, wine, and frozen meat. The Clinton Administration did not submit this bilateral trade agreement to Congress last year. The Bush Administration, however, has indicated it will soon send this agreement to the Hill for consideration. (For background, see U.S. - Vietnam Bilateral Trade Agreement in the CRS Electronic Trade Briefing Book.) Jordan. The United States records a substantial agricultural trade surplus with Jordan. In 2000, imports of food products were $766,000 compared to U.S. agricultural exports of $92 million. U.S. exports of grain (wheat, rice, and corn) and vegetable oils accounted for 80% of this amount. Wheat currently enters Jordan duty free. Under the FTA, Jordan will phase out its 5% tariff on imports of rice, corn, and unrefined vegetable oils from the United States over a 4-year period; the 30% tariff on imports of refined corn and soybean oil will be eliminated over a 10-year period. A U.S. International Trade Commission analysis concludes that the FTA will likely lead to negligible increases in total U.S. exports of rice, corn, and vegetable oil. That is because to be competitive in the Jordanian market, U.S. exporters in recent years have relied on USDA credit programs to make sales of these products. Further, future exports facilitated by the FTA would be small relative to total U.S. exports of these products. The Clinton Administration submitted this FTA to Congress for consideration on January 6, 2001. The Bush Administration has indicated it soon will ask for congressional consideration of the U.S.-Jordan FTA. Legislation to implement this FTA, S. 643, was introduced in the Senate on March 28, 2001. (For background, see Jordan Free Trade Agreement in the CRS Electronic Trade Briefing Book.) Singapore. The United States runs an agricultural trade surplus with Singapore. U.S. agricultural and food exports in 2000 totaled $233 million, compared to $60 million in imports. Top agricultural exports were fruit and related products, vegetables and related products, cooking oils, snack foods, and poultry meat. Purchases of rubber and related products, and cocoa paste and butter, accounted for two thirds of agricultural imports. Being primarily urban, Singapore produces little of its own food. Reflecting this, tariffs on imported foodstuffs are close to zero. Because this city state is a major shipping hub, some U.S. commodity groups are expected to seek the inclusion of rules of origin in the FTA to prohibit duty-free treatment of food products transhipped through Singapore from neighboring agricultural producing countries in Southeast Asia. Talks took place in Singapore May 21-May 26, 2001. (For background, see Singapore-U.S. Free Trade Agreement, CRS Report RS20755 (pdf).) Chile. The pace of liberalizing agricultural trade between the United States and Chile may prove to be a difficult issue in negotiating a FTA. The United States over the last decade has recorded a growing agricultural trade deficit with this major trading partner in Latin America. In 2000, U.S. agricultural exports to Chile totaled $115 million; leading products sold were corn and corn byproducts for feed, wheat, planting seeds, and snack foods. Chile's exports of agricultural products to the U.S. market were much higher at $1.025 billion. Sales of fresh fruit (primarily table grapes), wine, fruit juices, and planting seeds accounted for 85% of this total. U.S. negotiators are expected to press for increased market access for commodities (wheat, wheat flour, edible oils) now protected by Chile's price-band system. Price bands serve to insulate producers and processors when the world price for any commodity falls below a calculated reference price. Protection is provided the domestic sector by levying a variable charge on the imported commodity, which when added to its lower price, raises the importer's cost to the reference price target. Chile in turn is expected to seek a quick reduction in U.S. tariffs on the major farm products shipped to this market and in changes in how anti-dumping rules are applied. That is because agricultural exports - representing one-third of Chile's total exports to the U.S. market - are important to its economy. Others view a successful outcome of these FTA negotiations as a model that could be followed to conclude the FTAA (see below). The last meeting of negotiators occurred in mid-May with further talks scheduled every four to six weeks until negotiations have been completed. S. 586, introduced in the Senate on March 21, 2001, authorizes negotiations for a bilateral trade agreement with Chile or for the accession of Chile to the North American Free Trade Agreement (NAFTA), and provides for fast track (TPA) consideration of legislation to implement an agreement. (For background, see The U.S.- Chile Free Trade Agreement in the CRS Electronic Trade Briefing Book.) Free Trade Area of the Americas (FTAA) President Bush has stated that he places a high priority on proceeding to negotiate an agreement to completely remove trade barriers within the Western Hemisphere. The FTAA is intended to go beyond NAFTA to encompass trade among all of the region's countries, and eventually supersede the panoply of current regional FTAs and those that are being negotiated. Crafting the FTAA rules for liberalizing agricultural trade and then negotiating the fine details between the region's 34 countries by the target date of 2005 are expected to be difficult and contentious. Some Latin American countries, particularly Brazil, are seeking increased access to the U.S. market for competitive products such as beef, citrus, sugar and vegetables. U.S. commodity groups and agribusiness seek additional openings for their products in the rapidly growing Latin American market as well as legal assurances that all countries will abide by sanitary and phytosanitary rules with respect to agricultural imports. The Office of the U.S. Trade Representative (USTR) on January 17, 2001, provided summaries of the U.S. positions on the objectives and rules to be followed to negotiate FTAA's agricultural provisions. At the third Summit of the Americas in April 2001, hemispheric leaders, including President Bush, assessed progress to date and ratified the dates for completing FTAA negotiations and making the agreement effective. May 15, 2002 has been set as the deadline for initiating product and sector-specific negotiations. The leaders agreed to conclude all FTAA negotiations by January 2005 and that the final agreement would take effect no later than December 2005. (For more information, see A Free Trade Area of the Americas in the CRS Electronic Trade Briefing Book, Agricultural Trade in the Free Trade Area of the Americas, CRS Report RL30935 (pdf); and Trade and the Americas, CRS Issue Brief IB95017.) Agricultural Negotiations in the World Trade Organization (WTO) WTO members reached an agreement on March 27, 2001 setting out their work program for the second year of negotiations on agricultural trade. The WTO agriculture negotiations were launched March 23-24, 2000, at a special session of its Committee on Agriculture. (1) These negotiations are part of the so-called "built-in agenda" of the WTO and are intended to continue the process of "substantial progressive reductions in support and protection" of agriculture (Article 20 of the 1994 WTO Uruguay Round Agreement on Agriculture (URAA)) begun in the Uruguay Round. While the URAA established new and strengthened rules for the conduct of agricultural trade, the new round will focus on measures to expand market access for agricultural products and further reduce agricultural export subsidies and trade-distorting domestic support. The first phase, now concluded, entailed the submission and examination of proposals from WTO member countries. The work program calls for in-depth consideration of key issues raised in the proposals: They include: tariff quota administration, tariffs, amber box or prohibited domestic support, export subsidies, export credits, state trading enterprises, export restrictions, food security, food safety, and rural development. These issues and possibly others will be examined in three formal negotiating session in September and December 2001 and March 2002. Seven informal negotiating sessions will also take place before the formal sessions as well as in the months of May and July 2001 and February 2002. A new stock-taking review to assess progress would occur in March 2002, but no date has been fixed for concluding the second phase. The United States, the Cairns Group of agricultural exporting countries (2), the European Union (EU), Japan, and several developing countries submitted negotiating proposals during the first phase. The U.S. proposal calls for the elimination of agricultural export subsidies by a fixed date; substantial reductions in tariffs and increases in tariff-rate quotas on agricultural imports; disciplines on state trading enterprises; and reductions in amber box spending (trade distorting domestic support) based on the same fixed percentage of each country's total agricultural production value - with the objective of eventually making all countries' domestic support levels comparable in relative terms. The Cairns Group also calls for deep cuts in domestic support and the elimination of export subsidies. The EU, Japan, and Korea place greater emphasis on so-called non-trade concerns like protecting the environment and rural development. The EU has conditioned its support for further export subsidy reduction on including export credits and certain U.S. support programs such as loan deficiency payments on the negotiating agenda. Developing countries that are not members of the Cairns Group call for rapid dismantling of trade barriers of developed countries coupled with exemptions for domestic support deemed essential for economic development. A group of small island nations and former European colonies have argued for continued preferential treatment of their exports. Most U.S. agricultural interest groups rank U.S. participation in the agricultural trade negotiations as a high priority but would like to see sectoral negotiations folded into a more comprehensive multilateral round of trade negotiations. These groups believe that trade-offs possible in a more comprehensive negotiation would result in improved market prospects for U.S. agricultural exports. Others, such as winter vegetable producers or wheat farmers in states that border Canada who feel disadvantaged by previous trade agreements (i.e., NAFTA) are not enthusiastic about U.S. participation in a new round. Fast-track/TPA bills introduced in the 107th Congress apply to agreements resulting from WTO agriculture negotiations as well as agreements that might result from a more comprehensive round under WTO auspices. In the 106th Congress, the House and Senate Agriculture, House Ways and Means, and Senate Finance Committees held hearings on WTO agricultural issues. These same committees have announced plans to monitor the WTO agricultural negotiations during the 107th Congress. (For more information, see Agricultural Negotiations in the World Trade Organization, CRS Report 98-254 (pdf), or a summary similarly titled in the CRS Electronic Trade Briefing Book.) U.S. - European Union Agricultural Trade Relations The United States and the EU, the world's leading exporters of agricultural products, also are significant markets for each other's agricultural exports. Among factors affecting trade flows have been disputes over trade in meats from animals produced with growth-promoting hormones and conditions of access for bananas marketed by U.S. firms. U.S.-EU agricultural trade relations are also affected by differences in consumer attitudes and regulatory requirements for genetically engineered (GE) products, such as GE varieties of soybeans and corn (see Biotechnology and Agricultural Trade below). The United States and the European Union (EU) reached an agreement in April 2001 that resolved the long-standing dispute over the EU's rules for importing bananas. Banana exporting countries, such as Ecuador and the Caribbean countries, have concurred in the agreement. Two previous EU systems for regulating banana imports were challenged successfully in the World Trade Organization (WTO), and the United States was authorized to retaliate against several EU products. The U.S.-EU banana agreement provides for a transition to a tariff-only system of imports in 2006. In the meantime, the EU will establish quotas and a licensing system based on historical trade shares that should increase the prospects for Latin American banana imports in the EU market, especially bananas marketed by U.S. firms like Chiquita Brands International. Under the agreement, banana imports from developing countries that are former EU member country colonies will continue to enjoy preferential entry. Ecuador, the world's largest banana exporter, will also enjoy substantial market access for its bananas under the agreement. Trade policy officials on both sides of the Atlantic hope that the banana agreement will contribute to a climate for resolving other thorny trade disputes and foster greater bilateral and multilateral cooperation. Members and committees of the 107th Congress will be monitoring implementation of the agreement and its effects on U.S-EU trade relations. In the continuing meat hormone dispute, the United States successfully challenged in the WTO the EU's ban on imports of meats from animals produced with growth-promoting hormones. The WTO agreed with the United States that the ban, which the EU justifies as needed to protect consumer health, violates provisions of the WTO Sanitary and Phytosanitary (SPS) Agreement. This agreement requires food safety measures to be based on scientific evidence and an assessment of health risks. The WTO authorized U.S. retaliation of $117 million and the EU offered to compensate the United States with an enlarged quota for non-hormone treated beef in lieu of lifting the ban. The United States, however, has maintained that compensation, unless contingent on removing the ban, is unacceptable. No agreement on a compensation package has developed. Recent occurrences of bovine spongiform encephalopathy (BSE) or "mad cow disease" in several European Union countries and the outbreak of food-and-mouth disease (FMD) in the United Kingdom and three other EU countries have contributed to an environment that is not conducive to resolving the meat hormone dispute. The EU has recently indicated its intention to make the ban on hormone-treated meat permanent, while at the same time expressing some openness to renewing discussions about a compensation arrangement which would increase the EU's market access for non-hormone treated beef. Resolution of the banana dispute removed one critical irritant to the overall U.S.-EU trade relationship. Observers of U.S.-EU trade relations believe both the banana and meat hormones disputes have spilled over into other trade disputes such as the EU's successful WTO challenge of U.S. tax breaks for off-shore export companies, or "foreign sales corporations" (FSCs). The 106th Congress reacted to what it asserted was EU recalcitrance on the meat hormone and banana disputes by including an amendment in the Trade and Development Act of 2000 (P.L. 106-200) to require the President to rotate the products on a retaliation list to maximize the infliction of economic pain and give incentives to a losing party in a WTO dispute to negotiate compliance. The Clinton Administration did not implement this "carousel provision" because, some suggest, it would have added to an unfavorable climate for settling the commercially larger FSC issue with the EU. The current U.S. Trade Representative has acknowledged that U.S. restraint on implementing the carousel provision is in return for EU agreement not to invoke retaliation against the United States while the FSC dispute is being adjudicated in the WTO. Many in the 107th Congress will be scrutinizing the Administration's intentions with respect to the carousel provision and will be closely monitoring further developments in these disputes. (For more information, see The European Union's Ban on Hormone-Treated Meat, CRS Report RS20142; The U.S.-European Union Banana Dispute, CRS Report RS20130; CRS Electronic Trade Briefing Book entries on meat hormones and bananas; and The Foreign Sales Corporation (FSC) Tax Benefit for Exporting: WTO Issues and an Economic Analysis, CRS Report RL30684.) Biotechnology and Agricultural Trade Conflict between the United States and its trading partners over genetically engineered (GE) crops and food products that contain them pose a potential threat to, and in some instances have already disrupted, U.S. agricultural trade. Underlying the conflicts are pronounced differences between the United States and several important trading partners in consumer attitudes about GE products and their potential health and environmental effects. Widespread farmer adoption of bio-engineered varieties of corn, cotton, and soybeans makes consumer acceptance of GE crops and foods at home and abroad critical to U.S. producers, processors, and exporters. U.S. farmers have adopted GE crops because they offer prospects of reducing input costs or making planting more flexible. Aside from their agronomic benefits, supporters of GE crops maintain also that the technology holds promise for enhancing agricultural productivity and improved nutrition in developing countries. For the most part, U.S. consumers have not questioned the health or safety of GE foods and only recently have concerns begun to arise about the environmental consequences of planting GE varieties. In contrast, in the EU, Japan, South Korea, and elsewhere, consumers, environmentalists, and some scientists maintain that the long-term effects of GE foods on health and the environment are unknown and not scientifically established. The EU, in particular, insists that precaution should be used in approving and regulating GE foods. The U.S. regulatory framework for GE foods has facilitated their introduction into U.S. agriculture and food processing. The guiding principal has been that GE foods are no different from non-GE foods; therefore, existing regulations for approving foods are appropriate and adequate. Labeling with respect to GE content is not required in the United States, except where there is a significant difference between the conventional and the GE food product (for example, the presence of an allergen). The EU, Japan, South Korea, Australia, and New Zealand either have or are establishing mandatory labeling requirements for products containing GE ingredients. Japan, the EU, and South Korea are respectively the first, third, and fifth largest overseas markets for U.S. agricultural exports. Although the EU has developed a new approval process for GE crops, its implementation is being delayed as it develops further EU-wide legislation for tracing GE crops through the marketing chain, and for labeling products that contain GE ingredients. 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. Both the food industry and government regulators are likely to be involved in trying to meet the diverse labeling regulations in overseas markets. U.S. industry is assessing the costs and benefits of separating GE from non-GE crops and of preserving crop identity in the marketing chain. U.S. regulators are considering changes in the regulatory framework to permit and facilitate voluntary labeling and/or enhance systems for certifying the statements about the GE content of foods. Issues surrounding GE foods may be on the agenda of WTO multilateral trade negotiations (MTNs) in agriculture, launched in March 2000. Negotiations may focus on whether existing rules can be interpreted to apply to GE products or whether new rules are needed. Biotechnology issues seem likely to receive attention in the 107th Congress, particularly in light of the recent discovery of the presence in processed corn products for human consumption of the GE corn variety (StarLink TM) which had been approved only for feeding livestock. Two bills relating to genetically engineered foods have been introduced in the current Congress. H.R. 115 provides for a program of public education about biotechnology in food production, while H.R. 713 requires the Secretary of Agriculture to conduct, through the National Academy of Sciences, a report on the safety and monitoring of GE foods. In the 106th Congress, proponents of GE foods introduced bills (S. 19, S. 101, S. 566, and H.R. 817) to require U.S. trade negotiators to address "any unjustified restrictions or commercial requirements affecting new technologies, including biotechnologies" in multilateral trade negotiations. Proponents of labeling introduced bills that would have required labeling of foods as to their GE content (S. 2080, H.R. 3377). S. 3184 would have required premarket consultation and approval of GE foods. (For more information, see Food Biotechnology in the United States: Science, Regulation, and Issues, CRS Report RL30198; and StarLink Corn Controversy: Background, CRS Report RS20732; U.S. European Agricultural Trade: Food Safety and Biotechnology Issues, CRS Report 98-861; and Biotechnology and Agricultural Trade in the CRS Electronic Trade Briefing Book.) The current size of China's market for U.S. agricultural products and future prospects for growth in demand make China's accession to the WTO an important issue for U.S. agriculture. U.S. agricultural exports to China were valued at $1.5 billion in fiscal year 2000, making it the United States' seventh largest market for farm products. An additional $1.2 billion of U.S. farm products were shipped to Hong Kong in 2000. USDA forecasts U.S. agricultural exports to China of $1.8 billion in FY2001. In recent years, relatively slow economic growth in China has kept U.S. agricultural exports well below the $2.4 billion reached in 1995. In the long run, however, if growth resumes, as many economists expect, China's 1.2 billion population, and its growing middle class, suggest an enormous potential as a market for U.S. agricultural products. U.S.-China bilateral negotiations in 1999 over the latter's accession to the WTO resulted in China's agreement, when it becomes a member of the WTO, to make substantial reductions in agricultural tariffs and to establish market access quotas that should expand trade for several agricultural products of interest to the United States, including soybean products, wheat, rice, corn, barley, and cotton. In addition, China agreed to end its sanitary and phytosanitary (SPS) barriers to U.S. wheat, meat, and citrus exports. During the 106th Congress, President Clinton requested and Congress enacted legislation (P.L. 106-286) to accord China permanent normal trade relations (PNTR) status. This legislation, which extends to China the same low tariffs applied to other member countries of the WTO, will help ensure that the United States can take advantage of market openings for agriculture and other sectors when China enters the WTO. During the debate over PNTR, many U.S. agricultural organizations, particularly those representing commercial farmers and agribusinesses, argued that PNTR along with China's accession to the WTO would (according to USDA estimates) potentially increase U.S. farm exports by $1.6 billion by 2005, and thus raise farm prices and incomes. Failure to grant PNTR would have ceded these market opportunities to U.S. competitors, they argued. Opposition to PNTR arose from skepticism about China's willingness to open its markets to competition and to accept WTO rules and disciplines. Opponents also raised other issues such as China's questionable human rights policies and labor standards, and U.S. national security concerns. Once the 106th Congress had acted on PNTR, attention turned to final negotiations on China's WTO accession agreement where differences over agriculture have emerged as a main obstacle to completing the accession protocol. China is holding out for treatment as a developing country when it comes to exemptions from reduction commitments for trade-distorting domestic farm subsidies - 10% of domestic support exempted, versus 5% for developed countries. The United States argued that China should be held to the lower 5% exemption because it is such a large actor in world agricultural markets, but has reportedly offered to compromise on a percentage exemption of more than 5% but less than 10%. Further negotiations on this and other accession issues are expected to take place during the June meeting of the Asia Pacific Economic Cooperation (APEC) forum. Because of this and other differences, the timing of China's accession may be pushed back until the November ministerial conference of the WTO or even later. Congressional committees in the 107th Congress (especially the House Ways and Means, Senate Finance, and House and Senate Agriculture Committees) have indicated that they will closely monitor China's accession negotiations. Because PNTR authority will not take effect until China accedes to the WTO, the 107th Congress will again confront the issue of temporarily extending NTR status to China for another year. Congressional debate of a Presidential waiver of denial of NTR to China (under the Jackson-Vanik Amendment to the Trade Act of 1974, P.L. 93-618, section 401) would likely evoke many of the same issues raised during the debate over PNTR in the 106th Congress as well as congressional concerns about China's response to a forced landing of a U.S surveillance plane on its territory. (For more information, see Agriculture and China's Accession to the World Trade Organization, CRS Report RS20169; and China's Accession to the WTO in the CRS Electronic Trade Briefing Book.) Agricultural Export and Food Aid Programs The 107th Congress will again consider annual appropriations for the USDA, which include funding for federal programs to promote agricultural exports and to provide foreign food aid. Since authorizations for most major agricultural support, trade aid, and food aid programs expire in 2002, these programs also will be up for renewal as part of an omnibus farm bill. The major programs, which generally operate now under the authority of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 (P.L. 104-127), are: (1) the Export Enhancement Program (EEP) and Dairy Export Incentive Program (DEIP), the only current direct price export subsidy programs; (2) food aid programs (Section 416 food donations, Food for Progress, and P.L. 480 - Food for Peace); (3) export credit and credit guarantee programs (GSM-102 and GSM-103); and (4) market promotion programs (the Market Access Program and the Foreign Market Development Cooperator Program). For the international activities of USDA, the FY2002 budget proposes outlays of $2.4 billion to support a program level of $5.8 billion. The program level is $552 million below the current FY2001 estimate, while requested outlays are $528 million less. Lower levels for programs in FY2002 reflect almost entirely reductions in amounts anticipated for USDA's foreign food aid programs. Many of USDA's international programs are funded through the borrowing authority of USDA's Commodity Credit Corporation (CCC). Of the $5.8 billion in requested FY2002 program level for international activities, $3.9 billion would be for CCC export credit programs, which guarantee payment for commercial financing of U.S. agricultural exports. Two other CCC-funded programs help to develop markets for agricultural exports. For the Market Access Program (MAP), the Administration estimates spending of $90 million, the maximum allowed under the 1996 farm law. The Foreign Market Development Program (FMDP) or Cooperator Program would require outlays of $28 million in FY2002. The budget proposes EEP spending at $478 million, the maximum authorized in the 1996 farm law and under the World Trade Organization (WTO) Agreement on agriculture. EEP has been little used recently (only $1 million in FY2000) because, according to USDA, global supply and demand conditions do not favor its use. Suggestions have been made to divert unused EEP funding authorizations to other export programs. For DEIP, the budget proposes a program level of $42 million, an increase from the current FY2001 estimate of $32 million. For P.L. 480 (Food for Peace) programs, normally the main channel for U.S. foreign food aid and the largest appropriated international USDA program, the budget proposes outlays of $1.1 billion, $185 million less than estimated for FY2002. No specifics are provided for donations under Section 416(b). The President's initial FY2002 budget document, Blueprint for a New Beginning, identified two foreign food aid programs as possible candidates for revision. P.L. 480 Title I concessional food aid loans would be reviewed in terms of its continued effectiveness in meeting its market development objectives. Section 416(b) commodity donations would be reviewed to consider appropriate programmatic objectives and future availabilities of surplus commodities on which it depends. A bill introduced in the House, H.R. 229, would provide funds in connection with donating commodities under Section 416 (b) and increase funding and commodities in another food aid program, the Food for Progress Program (FFP). Critics argue that some of the export programs are "corporate welfare" and thus should be eliminated. U.S. trading partners have charged that USDA-administered export credit guarantees are forms of subsidized competition. Food aid is opposed by those who argue that it constitutes a disincentive to producers in the receiving countries, and by foreign critics who contend that it is being used as a thinly disguised export subsidy. On May 3, 2001, H.R. 1700 was introduced in the House. The bill would provide authorization for an international food for education and child nutrition program to be carried out under Section 416(b) of the Agricultural Act of 1949. The bill would authorize permanently a program like the previous Administration's Global Food for Education Initiative (GFEI). In both the 106th and 107th Congresses, the Senate Agriculture Committee held hearings on the GFEI announced by President Clinton in July 2000, and based on ideas advanced by Ambassador (and former Senator) George McGovern and former Senator Robert Dole. Under the GFEI, USDA donates surplus agricultural commodities for use in school feeding and pre-school nutrition projects in developing countries. The program's rationale is that school feeding helps assure that children attend and remain in school, improves childhood development and achievement, and contributes more broadly to social and economic development. USDA's Commodity Credit Corporation (CCC) has committed $300 million of U.S. commodities and transportation to the initiative using Section 416(b) authority for FY2001. USDA-approved projects will be conducted through the UN World Food Program (WFP), private voluntary organizations, and eligible foreign governments. As of late 2000, USDA had approved projects in 38 countries. In renewing the food aid and export assistance programs, congressional Committees also will again be confronted with questions of program direction and funding. In addition to the President, some Members of Congress also have questioned the effectiveness of these programs. In particular, some question whether export subsidy and market promotion activities actually increase overseas sales or simply displace those that would have occurred anyway. Even if sales increase, do they translate into substantially higher farm prices and incomes - or might direct farm subsidies be a more cost-effective approach? Some critics claim that these programs benefit primarily large food and export companies (who can afford to pay for such activities themselves) or foreign buyers more than the producers. Defenders cite studies claiming positive outcomes from such spending, although both sides agree that more critical analysis is needed. Debate over the issues raised by these programs and their future will likely intensify during the second session of the 107th Congress. (For more information, see Agricultural Export and Food Aid Programs, CRS Issue Brief IB98006; Agricultural Export Programs: The Dairy Export Incentive Program (DEIP), CRS Report RS20402 (pdf); Agricultural Export Programs: The Export Enhancement Program (EEP), CRS Report RS20399 (pdf); Agricultural Export Programs: The Market Access Program and Foreign Market Development Cooperator Program, CRS Report RS20415 (pdf); and Foreign Food Aid Programs: Background and Selected Issues, CRS Report RS20520 (pdf); and Agricultural Export Subsidies, Export Credits, and the World Trade Organization, CRS Report RS20858 (pdf).) The 106th Congress codified the lifting of U.S. sanctions on commercial sales of food, agricultural commodities, and medical products to Iran, Libya, North Korea, and Sudan, and also extended this policy to apply to Cuba (Title IX of H.R. 5426, as enacted by P.L. 106-387). Enacted provisions place financing and licensing conditions on sales to these countries; those applicable to Cuba are permanent and more restrictive than for the other countries. The inclusion of Cuba in this exemption to U.S. unilateral sanctions policy generated the most controversy. Proponents argued that the prohibition on sales to Cuba (a sizeable nearby market) harmed the U.S. agricultural sector, and that opening up limited trade would be one way to pursue a "constructive engagement" policy. Opponents countered that such an exemption would undercut current U.S. policy designed to keep maximum pressure on the Castro government until political and economic reforms are attained. In the compromise adopted by conferees, opponents succeeded in inserting the restrictive provisions that apply to Cuba. The law required that regulations to implement this exemption be issued by February 25, 2001. However, inter-agency disputes over how to interpret congressional intent have delayed their release. The Department of Treasury's Office of Foreign Assets Control seeks to apply to Cuba "restrictive" export licensing rules currently used for the other sanctioned countries also to Cuba. The Department of Commerce's Bureau of Export Administration proposes a more "flexible" licensing approach that would apply to all affected countries. Other issues in dispute include the level of detail used to define agricultural and medical products; whether commercial financing for sales to Iran, Libya, and Sudan should be allowed; and whether prior restrictions on medical product sales to Cuba should stay in effect despite the new law. These differences have been forwarded to the White House for resolution by the President's National Security Council, which has this matter under consideration. The final decision is expected to be colored by the Administration's position opposing any easing of the longstanding U.S. embargo on Cuba. Secretary of Commerce Evans, questioned at two recent congressional hearings, indicated the Administration plans to issue these regulations by the end of May. Cuban leaders have signaled that there will be no purchases of any U.S. products under this policy change because of the new statutory prohibitions on the use of private financing to make agricultural and medical product sales, and on tourist travel, to Cuba. Members of Congress opposed to these prohibitions have already introduced measures to repeal these provisions (H.R. 173; H.R. 174; H.R. 797/S. 402; H.R. 798/S. 400; S. 171; and S. 239). Some of these bills include these provisions as part of broader proposals to modify or end the U.S. embargo on Cuba. Separately, H.R. 742 stipulates that U.S. restrictions and prohibitions not apply with respect to the export of food, agricultural commodities, and medical products to Iraq, or to travel related to their sale or delivery to that country. Title IV of H.R. 627 and of S. 333 revisit broader issue of the parameters and process to be followed to exempt agricultural sales from being included in U.S. sanctions policy. (For more information, see Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and Implementation, CRS Issue Brief IB10061; and Cuba Sanctions in the CRS Electronic Trade Briefing Book.) Congressional Research Service. Agricultural Trade in the 106th Congress: A Review of Issues. CRS Report RL30789. December 29, 2000. U.S. Department of Agriculture. Economic Research Service. Outlook
for U.S. Agricultural Trade. February 22, 2001. Available on the Web at 1. (back)Negotiating
proposals submitted by individual countries, and background papers on negotiating issues
prepared by the WTO Secretariat, can be found at 2. (back)The 18 members of the Cairns group are: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay. Return to CONTENTS section of this Issue Brief. |
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