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Executive Summary #1233es on Trade and Economic Freedom

November 6, 1998

Why Free Trade Matters to the American Farmer

By

The global financial crisis is hurting American farmers already. Record harvests in the United States and other countries, worldwide grain surpluses, and the slumping demand in Asia have combined to drive the prices of agriculture commodities to their lowest level in decades. Farmers appealed to the 105th Congress to help expand U.S. agriculture exports by promoting free trade through legislation renewing the President's fast-track negotiating authority. But, in late September, Congress rejected a fast-track bill (H.R. 2621) by a vote of 243-180. The bill failed primarily because President Bill Clinton had made no concerted effort to garner support for its approval.

In addition, instead of expanding agricultural trade, Congress voted to give farmers $8.5 billion in subsidies, a practice that only undermines the market-oriented goals of the 1996 Federal Agriculture Improvement and Reform Act (FAIR). Senate Majority Leader Trent Lott (R-MS) described the agriculture subsidies as atrocious and far beyond what was reasonable. Secretary of Agriculture Dan Glickman, however, said the increased subsidies would not end the farmer's market crisis and reaffirmed the Clinton Administration's determination to expand the federal crop insurance program and raise the cap on marketing loan rates.

But the answer to the farm crisis lies not in more government subsidies but in freer trade. The solution to the stagnant agricultural market lies outside U.S. borders, where 96 percent of the world's hungry people live.

HOW CONGRESS CAN HELP FARMERS

American farmers are more reliant on foreign agriculture markets than the workers in any other sector of the U.S. economy. One out of every three acres of cultivated farmland in the United States is dedicated to exports, but trade in U.S. agricultural exports has grown at a considerably slower pace than has trade in U.S. merchandise goods exports overall.

The North American Free Trade Agreement and the Uruguay Round Agreement on Agriculture were important steps toward opening the world's agriculture markets to American farmers. But even today, foreign agriculture remains one of the most protected and subsidized sectors of the world economy. On the international level, the average non-farm tariff is 4 percent, but the average tariff on farm products is about 50 percent--and sometimes more than 100 percent.

The World Trade Organization (WTO) is scheduled to begin a new round of agriculture negotiations in December 1999. These talks are part of the so-called built-in agenda of the Uruguay Round Agreements that created the WTO. The agenda, adopted in 1994 mainly at the insistence of U.S. trade negotiators, includes agriculture, services, and other trade-related issues. The outcome of these negotiations will affect the strength and prosperity of American agriculture during the next decade. The United States must be prepared to lead the negotiations. To do so, however, the President will need fast-track negotiating authority.

Fast-track negotiating authority is not a trade agreement. It merely sets out the process by which Congress will consider certain trade agreements. Under fast-track authority, trade agreements negotiated by the President are submitted to Congress for a speedy up-or-down vote under rules barring committee or floor amendments. Fast-track authority does not give the President a blank check to negotiate trade agreements, and it does not deprive Congress of any of its constitutional authority to regulate commerce with other countries. Congress defines the objectives and limitations in fast track, and requires the Administration to give frequent consultation and to coordinate with the House Ways and Means Committee, the Senate Finance Committee, and special advisers designated by Congress. Fast track, then, facilitates free-trade agreements.

The United States has missed numerous opportunities to expand free trade since 1994 without fast-track negotiating authority, which hobbled U.S. trade policy and eroded the international leadership role of the United States. If Congress wants to help struggling farmers, it should assist them by working to open foreign markets to their products. Specifically, Congress should:

  • Leave FAIR alone. It works and does not need to be fixed.

  • Renew fast-track negotiating authority. Without it, no country will engage in serious talks with the United States to reduce high tariff and non-tariff barriers to U.S. farm exports.

  • Urge the President to launch a new round of global trade negotiations at the WTO and accelerate the pace of regional talks in the Western Hemisphere and Asia-Pacific regions.

  • Make compliance with current trade agreements a condition for foreign aid from such organizations as the International Monetary Fund (IMF) and the World Bank.

  • Withhold funds to the IMF and World Bank until they amend their bylaws to require aid recipients to comply with WTO rules.

CONCLUSION

The only way to guarantee the future health of U.S. agriculture trade is to expand the access of American farmers to overseas markets. Free-trade initiatives that increase agricultural exports would lead to an increase in farm income and export-related jobs. Moreover, as the U.S. government shifts its emphasis away from a reliance on commodity price supports, trade with other countries would expand and become the best hedge against the market uncertainties that farmers face.

Without fast-track trade negotiating authority, the United States is losing its competitive advantage. Its agricultural position in global grain trade is being threatened, and the economic stability of American farmers is eroding. By supporting free-trade initiatives and granting the President fast-track authority in 1999, Congress would ensure that the United States continues to shape the rules and dynamics of international trade, and that American farmers have access to global markets.

--John Sweeney is Latin America Policy Analyst in The Kathryn and Shelby Cullom Davis International Studies Center at The Heritage Foundation.

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