Farmers, ranchers, and consumers derive immense benefits from free trade in agriculture and participation in the global trading system. Despite these benefits, however, U.S. agricultural protectionism is still prevalent through traditional barriers like tariffs and quotas, as well as non-traditional barriers like subsidies and onerous regulations that do little to advance public health or safety.
Such protectionist policies are unnecessary. The experience of less-protected U.S. farm sectors and of other countries demonstrates that farmers can be globally competitive without protectionism. The United States should therefore not hesitate to move its agricultural trade system in a more modern, market-based direction.
This paper assesses how the U.S. farm sector has benefited from open trade yet still suffers from rampant protectionism. In the process, it will also highlight key points about U.S. agricultural trade policy and make concrete policy recommendations to promote free trade in agriculture.
Benefits of Free Trade in Agriculture
Trade liberalization and the global trading system have generated vast benefits for U.S. agricultural producers and consumers. These benefits have come in two basic forms: economic benefits from lower tariffs and non-tariff barriers to trade in farm products and recourse to the World Trade Organization (WTO) dispute settlement system to resolve foreign trade barriers that affect U.S. agricultural interests.
Economic Benefits of Free Trade in Agriculture. Because agricultural productivity in the United States is growing faster than demand for food and fiber, “U.S. farmers and agricultural firms rely heavily on export markets to sustain prices and revenues.” Fortunately, trade in agricultural products has exploded. According to the U.S. Department of Agriculture (USDA), both exports and imports of farm goods approximately tripled in value between 1998 and 2014 in nominal dollars; in real dollars, the amount has more than doubled. Over this period, which coincides with implementation of the WTO and the North American Free Trade Agreement (NAFTA), annual U.S. farm exports increased from approximately $52 billion to $150 billion, while imports rose from approximately $37 billion to $2 billion (see Chart 1).
Benefits of exports. U.S. agricultural exports have had a ripple effect through the economy. According to the USDA’s Economic Research Service, the $150 billion in agricultural exports in 2014 created an additional $190.6 billion in economic activity (see Chart 2) and over 1 million full-time jobs.
Benefits of imports. Imports give U.S. consumers improved access to food that was once considered seasonal or cost-prohibitive and help them to eat more healthfully without the need for top-down government intervention. Between 1999 and 2014, for example, U.S. imports of fish, vegetables, fruit, and nuts increased by approximately 32 percent, 50 percent, 35 percent, and 44 percent, respectively. (See Chart 3.) The Congressional Research Service notes that agricultural imports benefit Americans by “lowering costs (given a wider supply network), improving eating quality, assuring food safety, conducting promotions, and reducing product losses.”
Critical importance of trade agreements. It is undeniable that U.S. trade agreements like the General Agreement on Tariffs and Trade (GATT) and North American Free Trade Agreement have contributed to the growth in U.S. farm exports. According to the USDA, export gains were strong for countries with which the United States has a free trade agreement (FTA): Between 2004 and 2014, U.S. agricultural exports to those countries increased more than 145 percent, from $24 billion to $59 billion. For NAFTA alone, the USDA found that “[b]etween 1993 and 2000, U.S. agricultural exports to Canada and Mexico expanded by 59 percent, while corresponding exports to the rest of the world grew only 10 percent.”
Unsurprisingly, the countries selling the most food in the United States were most often those with which the United States has free trade agreements or has unilaterally reduced tariffs through preference programs: Mexico, Chile, Costa Rica, and Guatemala for fruit; Mexico, Canada, Peru, and Guatemala for vegetables; and Australia, Canada, Mexico, and Nicaragua for meat. Imports from China also experienced significant gains following that country’s entry into the WTO. (For a list of country suppliers of fruits and vegetables, see Appendix 1.)
These imports also mean jobs: Unfettered access to agricultural imports is often critical for downstream U.S. companies—e.g., grocers, restaurants, and food processors—to remain competitive. Because these corporate consumers often employ far more American workers than do their upstream suppliers, agricultural protectionism can create disproportionate harms for the U.S. labor market. Further, access to international markets through imports allows U.S. companies to buy less expensive inputs to their products, which leads to savings that allow U.S. products to be more competitive both at home and abroad and that ultimately are shared by their customers.
A survey of economic analyses conducted by the USDA after NAFTA’s full implementation in 2008 found that, compared to what would have occurred without the agreement, NAFTA produced significant gains in U.S. agricultural exports and imports. Expert assessments found that the agreement’s impact on U.S. agricultural trade was biggest in the commodity sectors that experienced the most significant reductions in tariff and non-tariff barriers.
The report further found that “[i]n addition to increasing regional agricultural trade, NAFTA has helped to broaden the seasonal availability of fresh produce and to increase the variety of food products available to consumers.” Among the “new varieties” of imports available to American consumers were grape tomatoes and fresh avocados, “products whose importation has benefited not only from trade liberalization under NAFTA but also from the introduction of a tomato variety from Taiwan (grape tomatoes), and more trade-oriented ‘phytosanitary’ (agriculture-related) regulations (fresh avocados).”
The Trans-Pacific Partnership Offers New Liberalization. The recently concluded Trans-Pacific Partnership (TPP) looks to offer similar tariff liberalization benefits for U.S. consumers and agricultural exporters. While imperfect, the TPP would lower, either immediately or over a short phase-in period, U.S. tariffs on a wide range of grains, fruits and vegetables, meats, and dairy products. Many of these tariffs are currently quite high, thus enhancing the benefit of the TPP’s liberalization for American consumers. As the Peterson Institute notes, the United States would eliminate about two-thirds of its “more restrictive tariffs (including all tariffs above 5 percent and specific tariffs)” as soon as the TPP enters into force, and “most of the higher tariffs to be eliminated immediately are in agriculture (such as vegetables and beans), chemicals and apparel.” Similar tariff liberalization would occur in the TPP’s other member countries, including lucrative new markets like Japan and Vietnam, thereby benefiting U.S. farmers and ranchers.
Benefits of the World Trade Organization
The United States’ participation in the multilateral trading system (i.e., the WTO) has produced tangible gains for U.S. agricultural interests. These benefits have accrued through basic trade-liberalization commitments made by all WTO members and in many WTO venues, most notably the dispute settlement system, in which WTO member governments request consultations with one another about trade barriers before possibly litigating those barriers before an independent, WTO-appointed adjudicative panel or the permanent Appellate Body. In response to final rulings of the panel or Appellate Body, WTO members either remove a WTO-inconsistent measure or accept “retaliation” by the member(s) who first requested consultations.
Significant U.S. Success in WTO Dispute Settlement Proceedings. According to the WTO, the United States government has initiated 29 dispute settlement proceedings over other WTO members’ barriers to U.S. farm exports, including non-tariff barriers, discriminatory health and safety rules, and subsidies. Prior to the WTO, these foreign trade barriers were virtually impossible to challenge without self-defeating U.S. protectionism because systemic limitations in GATT dispute settlement left the United States with few alternatives other than to impose retaliatory sanctions (e.g., under Section 301 of U.S. trade law, which at the time permitted unilateral U.S. retaliation against foreign trade barriers) or to negotiate “voluntary export restraints” with foreign governments. Often, unilateral U.S. trade sanctions produced a “tit-for-tat” retaliation by offended foreign trading partners, further injuring U.S. economic interests.
The WTO broke this painful cycle by providing a formal legal venue for enforcing other WTO members’ trade-liberalization commitments. As indicated in Appendix 3, the United States achieved a “victory”—an affirmative ruling and/or the elimination or modification of the measure at issue—in every single WTO case that moved beyond the first government-to-government “consultations” stage (and even in many of the consultations-only disputes). In only two cases did the offending WTO member refuse to comply with an adverse ruling, and only once did the United States need to resort to retaliation in order to convince one of these members to implement the WTO ruling at issue. The multilateral trading system has enforced the WTO agreements’ tangible market-access benefits for U.S. farmers and ranchers without the use of protectionist tariffs or market-distorting subsidies that harm American consumers and the economy more broadly and without the threat of foreign retaliation. (For a list of U.S.-initiated proceedings, see Appendix 3.)
How the U.S. Undermines Free Trade in Agricultural Markets
Despite the demonstrated and far-reaching benefits of free trade in agriculture, the U.S. government still maintains—and in some cases vigorously defends—measures that restrict or distort free trade in farm products. This protectionism can take the form of tariffs or non-tariff barriers.
Tariffs Undermine Free Trade. Although U.S. tariffs and non-tariff barriers are low on average, the United States still maintains high barriers to trade in many agricultural products. For example, according to the U.S. International Trade Commission (ITC), the United States maintains basic “most favored nation” (MFN) tariffs (i.e., not affected by free trade agreements or preference programs) of 5 percent or more on 1,427 different “agricultural” products. Of those, 240 products are cotton, wool, and other textiles and fabrics, and 579 cover basic food products. Moreover, these examples are part of a broader trend: The WTO estimates that the United States imposes, on average, tariffs on agricultural products that are substantially higher than the average U.S. tariff on non-agricultural imports. (See Chart 4.)
Outside the basic tariffs, the United States also maintains tariff rate quotas (TRQs)—under which imports are not capped, but tariffs increase significantly upon imports reaching a certain volume—on, among other things, olives; tuna; cotton products; wool fabrics; sugar products; beef; milk, cheese, and other dairy products; chocolate; various condiments and seasonings; mixes and doughs; peanut butter and peanuts; and tobacco. These TRQs can vary according to whether they were negotiated at the WTO or under various free trade agreements and preference programs.
The WTO estimates that the total duties collected on these goods (i.e., taxes paid by U.S. consumers) was over $5.37 billion in 2014. The vast majority of these taxes—$3.48 billion—was paid on imports of basic food products, particularly fruits, nuts, and vegetables. These payments also do not reflect the hidden tax imposed on U.S. food consumers in the form of higher prices on American farm products due to a lack of price competition from imports.
According to a 2013 ITC report, traditional trade barriers on three food categories impose disproportionate harms on U.S. consumers:
- Sugar. The United States administers a highly restrictive TRQ system on imports of raw cane and refined sugar, as well as blended sugar syrups, that keeps domestic prices artificially high. The “[r]emoval of restrictions on imports of sugar would result in a welfare gain to U.S. consumers of $1,660 million over 2012–17, or an average of $277 million per year.”
- Cheese. The U.S. cheese sector also is subject to high tariffs and restrictive TRQs (131 of the dairy sector’s 157 cheese products are subject to a TRQ of some sort) that limit U.S. cheese prices and inflate consumer costs. Removal of these trade barriers would increase U.S. consumer welfare by $50 million per year and lower domestic prices relative to world prices.
- Canned tuna. Duties on tuna packed in oil are subject to a high tariff of 35 percent, and imports of canned tuna packed in water are subject to a TRQ with an over-quota duty rate of 12.5 percent. Liberalization of these barriers would increase U.S. consumer welfare by $7.7 million per year and lower domestic prices relative to world prices.
Non-Tariff Barriers Undermine Free Trade. The U.S. also undermines free trade through numerous non-traditional barriers to trade that have the same or worse effects that tariffs have on U.S. consumers and the economy. Three of these barriers include:
Subsidies. U.S. agricultural subsidies create a particularly harmful non-tariff barrier to imports and also distort foreign export markets. Non-market financial support for specific farm commodities, as well as broader government support for agriculture through programs like crop insurance, can artificially depress U.S. prices and thus make foreign exporters uncompetitive in the U.S. market.
Subsidies also can allow U.S. exports to undercut global competition unfairly. For example, U.S. cotton subsidies have long been criticized for harming African cotton growers by depressing global prices. According to one recent study, a “typical small cotton farm would have gained more than $100 per year if US programs had not depressed cotton prices.” That might not mean much to American agribusiness, but it can make a world of difference for poor African farmers. Nevertheless, the United States continues to maintain its subsidies at the expense of both the world’s poorest farmers and trade-liberalization initiatives like the WTO’s “Doha Round” of global trade negotiations meant to update and expand the body’s trade-liberalizing agreements.
Regulatory barriers. Often, U.S. regulations promulgated under the guise of “consumer welfare” are in fact a pretext for protectionism. These barriers on agricultural inputs, food, and agricultural products hurt farmers and ranchers by increasing prices and creating supply chain problems for multinational agricultural companies that routinely source feed, seed, and product from other countries. Ultimately, this hurts American consumers. Appendix 2 lists examples that reflect the trade problems posed by U.S. regulations. From onerous regulatory regimes on products like tuna, catfish, and biofuels to the controversial Country of Origin Labeling (COOL), the U.S. has used trade regulations to protect special interests at the expense of the greater economy.
Trade “remedies.” The United States also restricts imports of agricultural products through trade remedy measures (anti-dumping, countervailing duty, and safeguards) and related “suspension agreements” that temporarily stop cases in exchange for import price floors and/or volume limits. Although intended to remedy “unfair” and/or injurious trading practices by foreign governments and companies, trade remedies have long been recognized as unfairly discriminating against imports and U.S. consumers to the benefit of a well-connected cadre of domestic producers. They impose duties on imports that are often far above—frequently over 100 percent of—the level necessary to remedy the supposed injury to the U.S. industry. The United States currently maintains 22 anti-dumping or countervailing duty orders on agricultural products, as well as two suspension agreements with Mexico on sugar and tomato imports. (See text box, “What Are ‘Trade Remedies’”?)
Barriers on Agricultural Inputs
U.S. farmers and ranchers also suffer from traditional and non-traditional barriers on imported agricultural inputs into the United States. Some examples of these barriers include:
- Feed. Trade barriers on feed act as an explicit or implicit tax on American producers of poultry and livestock. For example, most favored nation (MFN) tariffs on several forms of feed with milk or milk derivatives are significant, ranging from 6.4 percent to 7.5 percent. Animal feed is also subject to a restrictive TRQ. According to the WTO, average tariffs on animal feeds are approximately 3.5 percent by value, and U.S. importers paid almost $10 million in duties on these products in 2014.
- Farm machinery/equipment. Imports of the vast majority of farm machinery and equipment may enter the United States duty-free except for machinery for breweries (2.3 percent); machinery for the preparation of meat and poultry (2.8 percent); and parts of machinery for the industrial preparation or manufacture of food or drink (2.8 percent).
- Fertilizer. Tariffs on fertilizer imports are zero, but the United States imposes anti-dumping duties on ammonium nitrate and solid urea from Russia and Ukraine. These duties have been in place since the mid-1980s and force American farmers to pay more for a critical input product and suffer from market uncertainty.
These barriers on agricultural inputs, just like those on food and agricultural products, hurt U.S. consumers—in this case, farmers and ranchers.
Protectionism in U.S. Agreements and the WTO
Agricultural protectionism is also a hallmark of the U.S. government’s actions in its bilateral, regional, and multilateral trade agreements.
Trade Agreement Negotiations. Although U.S. free trade agreements typically liberalize the vast majority of parties’ tariffs and non-tariff barriers, the U.S. Trade Representative (USTR) historically has fought to maintain various exceptions—for example, long phaseout periods or total exemptions—for many agricultural products. Perhaps the most egregious example is the complete exclusion of sugar from additional liberalization under the U.S. free trade agreement with Australia, one of the world’s largest and most economically efficient sugar producers.
The TPP, regrettably, would continue this trend. In fact, despite liberalizing many U.S. agricultural tariffs immediately or within a few years after entry into force, the TPP would maintain—and in some cases would even create—new barriers to imports of supposedly “sensitive” food imports. According to the USDA, the agreement would maintain long phase-in periods for U.S. tariffs on, for example, beef (15 years); dairy products (20–30 years); processed fruit (15 years); and rice (15 years). Even more troubling, the TPP would target some of the most competitive TPP exporters by establishing restrictive TRQs on sugar, beef, and dairy imports and “special safeguard mechanisms,” which restrict “surges” of fairly traded imports from these countries, for sugar and dairy. (See text box, “TPP Country-Specific Tariff Rate Quotas.”)
In the WTO’s Doha Round, meanwhile, the USTR refused to make either ambitious offers to or demands of other countries on farm subsidies. The 2008 U.S. offer—the last, best one made to the WTO—was immediately deemed insufficient by almost all countries and was largely blamed for the collapse of talks in July 2008. President Barack Obama made no effort to improve the U.S. offer, thereby ensuring the Doha Round’s struggles.
Preference Programs. U.S. unilateral preference programs suffer from the same problems that beset U.S. free trade agreements when it comes to agricultural exclusions. Preference programs—the Generalized System of Preferences (GSP); African Growth and Opportunity Act (AGOA); Caribbean Basin Initiative (CBI); and Andean Trade Preference Act (ATPA)—are intended to provide duty-free access to developing country imports. Yet many agricultural products—for example, agricultural products that are subject to TRQs—are completely exempt from these programs, and even eligible farm imports are subject to low caps when they become too “competitive.”
WTO Disputes. Despite effectively using WTO dispute settlement to challenge other members’ agricultural trade barriers, the United States has repeatedly refused to comply with adverse WTO decisions against its own farm policies. This non-compliance not only exposes U.S. exports to WTO-sanctioned retaliation, but also further undermines U.S. efforts to negotiate new reductions in global farm protectionism and subsidies. Prominent cases of non-compliance include the Upland Cotton, COOL, and Tuna II cases discussed elsewhere in this paper. New WTO disputes against U.S. agricultural policies could be on the horizon.
Costly Impact of U.S. Agricultural Protectionism
Protectionists will claim that these trade barriers are necessary for the success of U.S. agriculture. However, these barriers harm agriculture, including America’s farmers and ranchers. They also harm consumers, generate WTO-consistent retaliation against U.S. exports (often farm exports), deter the further liberalization of key foreign markets, and undermine America’s diplomatic standing in the world.
Economic Impact of Protectionism. American agricultural protectionism and subsidies have numerous harmful economic effects. Specifically, they:
- Hurt farmers and ranchers. Trade barriers have had a dulling effect on the success that the agriculture industry could have (and the consequent benefits for customers) if markets were liberalized. Several studies have assessed the impact of additional liberalization of U.S. agricultural trade and subsidies and have found that both consumers and the farm sector would benefit. For example, a 2005 Congressional Budget Office (CBO) survey of five different academic studies found that each analysis predicted benefits for U.S. agriculture from full liberalization of trade in the sector. Four of five studies predicted gains in terms of agricultural output, and the only one predicting negative effects still forecast continued growth of the farm sector, just at a slower rate.
- Hurt consumers, especially the poor. Tariffs and non-tariff barriers on farm imports raise the costs of such goods for consumers, forcing American families and businesses to pay higher prices for food than they would pay in the absence of such protectionism. For example, according to a 2009 ITC study, American consumers paid up to 57 percent more than their foreign counterparts paid for heavily protected foods like milk, butter, sugar, and tuna. These trade barriers are highly regressive, forcing poor consumers to expend a larger proportion of their budgets to afford daily food essentials.
- Expose U.S. exports to retaliation. Because U.S. agricultural protectionism often violates the United States’ international obligations under the WTO agreements or bilateral/regional free trade agreements, U.S. farmers face retaliatory tariffs on their exports when trading partners challenge U.S. trade barriers through dispute settlement. For example, due to U.S. non-compliance in the Upland Cotton and COOL disputes discussed elsewhere in this paper, U.S. farmers, ranchers and other exporters faced almost $4 billion in potential retaliatory sanctions imposed by aggrieved WTO members. (See text box, “The Cost of Agricultural Protectionism: Upland Cotton and COOL Cases at the WTO.”)
If the United States loses disputes regarding its agricultural trade protectionism (as it almost always does), American companies will be exposed to legal retaliation against their exports of farm products or other goods or their intellectual property. Even the threat of such retaliation is often sufficient to harm U.S. economic interests, a particularly troubling possibility given that retaliation often targets U.S. commercial sectors that have nothing to do with farm trade.
- Impede global development. U.S. agricultural tariffs and subsidies harm developing country exporters by denying them access to the U.S. market or depressing global prices. As a result, the U.S. measures thwart market-based global development and impoverish future potential customers (e.g., African cotton). This harm is especially problematic in a time of contentious and strained U.S. foreign aid budgets.
- Distort markets. U.S. barriers to farm trade distort global markets and exacerbate boom-and-bust cycles both in the United States and abroad. They also promote resource hoarding by foreign trading partners who seek to keep domestic commodity prices artificially low by imposing export restrictions. These and other measures, in turn, further corrupt global agricultural markets.
- Bust the federal budget. Domestic agricultural trade policies are costly. U.S. farm subsidies, including just the Title I commodity subsidies and crop insurance subsidies alone, total about $15 billion per year. According to the CBO’s projections for the 2014 farm bill, the United States will spend $3.6 billion on the bill’s trade-specific programs through 2023.
Diplomatic and Foreign Policy Harms of Protectionism. Since the Administration of President Franklin D. Roosevelt, free trade has been a pillar of U.S. foreign policy, accepted and promoted by the U.S. State Departments of Republican and Democratic Presidents alike. The primary vehicle for trade liberalization has been U.S. free trade agreements, which promote national security in a myriad of ways. When the United States flouts such agreements or imposes lawful trade barriers that harm key trading partners it acts against both its economic and its long-term security interests. U.S. farm subsidies and import barriers have undermined and in some cases have thwarted trade agreement negotiations in which the United States participates.
For example, it has long been argued by U.S. analysts and foreign trading partners that U.S. recalcitrance on the reduction of farm subsidies was one of the primary reasons that the Doha Round ground to a halt in 2008–2009. U.S. cotton trade policy has also been a long-standing target of WTO members, particularly poorer African nations with large export potential; as the WTO languishes, so does the ability of poor African cotton farmers to improve their lives and benefit U.S. consumers. More recently, a leaked summary of the TPP negotiations indicated that the United States was the only participant to refuse to eliminate its agricultural export subsidies, thus further slowing the negotiations.
The Biggest Myth: Foreign Subsidies Justify Domestic Subsidies
Despite the benefits that Americans have derived from free trade policies, as well as the far-reaching costs of protectionism, the myth that removing U.S. protectionist barriers is as foolish as unilateral disarmament persists. Supporters of U.S. agricultural subsidies argue that subsidies are necessary in order to offset massive subsidization by competitors’ foreign governments, particularly in the European Union, China, and Brazil.
There also are variations of this argument. For example, connected to the sugar program is the “zero-for-zero” argument, which claims the U.S. should get rid of its sugar subsidies only when other governments do the same. In addition, there are the arguments that the presence of “un-free” markets (i.e., those featuring subsidies or protectionism) justifies the United States’ use of similar measures until truly “free and fair” trade is achieved.
These arguments suffer from many flaws, not the least of which is the fact that they could apply to almost any industry. The U.S. generally does not subsidize an entire industry just because another country does so. If it did, America’s already unacceptable level of cronyism, protectionism, and corporate welfare would skyrocket even further.
This is not to say that foreign agricultural subsidies should be ignored; that would be a major mistake. Instead, the United States should be aggressive in fighting against foreign subsidies in order to open up market opportunities for U.S. farmers and ranchers. Creating or maintaining our own subsidies or protectionist measures inhibits these efforts and hurts American workers and businesses in the process. To address foreign agricultural subsidies, the United States therefore:
- Should not follow the misguided lead of other countries by hurting itself. There is overwhelming evidence that subsidies, particularly those for agriculture, distort markets and reduce economic welfare; just because one country harms its citizens is no reason for the United States to do the same. This argument is sometimes used to justify the sugar program. This program provides clear evidence of how subsidies help a narrow special interest at the expense of consumers, other businesses and workers, and the U.S. economy. A 2006 International Trade Administration study of U.S. sugar trade barriers found that “[f]or each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost.” The study also found that sugar trade barriers had caused many sugar-using companies to close or move to foreign markets (e.g., Canada and Mexico) where sugar prices were lower. A 2013 Iowa State University report found that getting rid of the sugar program would save consumers up to $3.5 billion per year. Maintaining boondoggles just because other countries do the same is the height of irrationality.
- Should not cede control of U.S. economic policy to other countries. The zero-for-zero argument maintains that the United States should not unilaterally dismantle protectionist or subsidy programs. This cedes U.S. control of its own economic decisions to countries like China and Brazil. The United States should remain free to improve its economy without having to wait for other countries to do likewise.
- Should not undermine chances for reform. The zero-for-zero approach would likely prohibit reform in the United States or elsewhere. The WTO’s Doha Round spent over a decade trying and failing to produce an agreement among members to reduce and bind their total farm subsidy levels. (Members did finally agree to eliminate agricultural export subsidies, but this outcome is far narrower than originally intended and still permits agricultural export credits like those used to support U.S. cotton exports.) Many WTO members blame their own subsidization, as well as the Doha Round’s failure, on U.S. farm subsidies. This stasis is proof of a “prisoners’ dilemma”: Because no member appears to be willing to take the political risk that being a first-mover on broad subsidy reform would entail, particularly not until the United States moves, all WTO members are doomed to inaction. Zero-for-zero would do the same.
- Should not ignore the many tools that it has available to address the subsidies of other countries. The zero-for-zero argument also ignores the fact that the United States could eliminate all of its subsidies and still have ample legal tools at its disposal to encourage others to follow suit. Multilateral negotiations could introduce new, binding caps on global subsidies, and the United States would be, unlike the current situation, in a superior moral and diplomatic position to demand them. Current and future U.S. free trade agreements could provide another venue for subsidy reforms. Finally, international anti-subsidy disciplines permit consultations with a foreign government over its trade-distorting farm subsidies and, if such consultations fail, investigation of the alleged subsidies and eventual imposition of remedial U.S. tariffs on imports from the offending government. These consultations or investigations can occur either at the WTO (through dispute settlement) or as a part of U.S. “countervailing duty” cases.
The Related Fair Trade Myth. Another, very similar argument in favor of subsidies is also based on the notion that the U.S. regulatory burden is greater than the regulatory burdens of other nations. The only way to help offset this allegedly unfair advantage, it is argued, is to level the playing field with subsidies. This claim, however, is just as misguided as the zero-for-zero concept.
Ever-increasing U.S. farm exports demonstrate that U.S. farmers and ranchers are not at a serious competitive disadvantage globally vis-à-vis developing country exporters with lower regulatory burdens. Furthermore, most of the aforementioned arguments against zero-for-zero would apply here as well. Subsidies and import barriers are harmful, distort markets, and undermine needed reforms at home and abroad. If U.S. regulations are so onerous as to put U.S. farmers at a competitive disadvantage globally (which, as noted, does not appear to be the case), then the obvious solution is to change those regulations, not to burden U.S. families and companies with another layer of costly regulations (i.e., subsidies and protectionism).
Although the economic arguments for dismantling self-destructive trade barriers and subsidies are strong, politically powerful special interests often are able to resist such reforms. Free trade agreements, in addition to reducing foreign barriers to U.S. exports, may create support for reductions in U.S. barriers that otherwise would be politically difficult to achieve.
What Needs to Be Done
The United States government should undertake a two-stage approach that will ensure reform of the U.S. trade system and help to reform global trade barriers and subsidies in agriculture. These solutions would help farmers and ranchers as they seek more opportunities to reach new markets with their goods.
Stage 1: Get our own house in order. There is no doubt that other countries are, much like the United States, heavily distorting global agricultural markets through trade barriers and subsidies. However, the solution to this problem is not harmful proposals like zero-for-zero, but rather a more calculated and principled approach to the problem that first addresses U.S. farm policies. This first stage should include some, if not all, of the following reforms:
Unilateral liberalization of traditional tariff barriers. The U.S. Congress should pass legislation eliminating tariffs and TRQs on agricultural products and inputs. Doing so would benefit consumers by purging a regressive tax on food while instantly eliminating the complexity of the current U.S. tariff system. Farmers and ranchers face few such taxes on their main inputs, and there is no reason why their customers do not deserve the same benefits.
If the total elimination of tariff barriers proves to be politically impossible, then Congress should at least enact the following reforms:
- Streamline the U.S. tariff structure so that all tariffs on food products are low and uniform across countries, or
- Reform the GSP to provide long-term, duty-free access for food imports from least developed countries.
Full compliance with international trade obligations. The USTR should work with Congress and the executive branch to adopt policies that would bring the United States into full compliance with its WTO obligations. This would include
- Legislation to reform or eliminate U.S. export subsidies for cotton and
- Regulatory or legislative reform of the “dolphin safe” tuna labeling system to ensure that all tuna, regardless of source, is subject to the same certification procedures and that the system incorporates the latest evidence regarding safe fishing methods.
Assessment and elimination of non-tariff barriers. Congress or the President should direct the U.S. ITC to conduct a general fact-finding investigation, permitted under Section 332 of U.S. trade law, of subsidies and non-tariff barriers (including trade-remedy measures) and their effects on the U.S. economy and trade. This report should then be used as a baseline for reforming or eliminating these measures, but any such reforms would necessarily include:
- Immediate elimination of remaining export subsidies (i.e., the GSM-102 export credit guarantee program);
- Replacement of the various U.S. labeling regimes with a uniform, permissive, non-discriminatory system based on internationally accepted standards; and
- Reform of U.S. trade-remedy laws so that any final determination must consider consumer interests (a “public interest” standard, similar to the one now in place in New Zealand) and must ensure that assessed duties are no greater than necessary to cease causing injury to the U.S. industry (a “lesser duty rule”).
The USTR would then notify the WTO of its full compliance, thereby ending years of costly WTO litigation.
Stage 2: Go on offense. Unilateral reform of U.S. agricultural trade policy not only would produce tangible economic benefits, but also would put the United States and American farmers and ranchers in a much better position to confront other countries’ trade barriers and subsidies aggressively. Although the United States reportedly has amplified its efforts in these areas, more should be done. These efforts will not be effective, however, if the United States does not have the moral authority to pursue needed global reforms:
Revise U.S. free trade agreement negotiating objectives for food. As a first step, Congress should revise Trade Promotion Authority (Public Law 114–26) to include new “Principle Negotiating Directives” for trade in agriculture that expressly prohibit the exemption of certain commodity groups from tariff and non-tariff liberalization; ensure that any remaining barriers are channeled into low, transparent tariffs; and require the USTR to confront members at the WTO more aggressively. Although the USTR has the implied authority under current law to achieve these objectives, they should be expressly stated in the law, thereby binding future Administrations.
Include more vigorous demands and offers in WTO negotiations. The United States, as part of a new “post-Doha” WTO negotiating round, should dramatically improve its offer to reduce trade-distorting U.S. farm subsidies. Doing so would eliminate one of the main roadblocks to robust multilateral trade negotiations while permitting the United States to make more aggressive demands that other WTO members likewise eliminate their subsidies and other barriers to farm trade. It also would re-establish the United States as a global leader in trade-liberalization initiatives—a status regrettably relinquished over the past decade.
Launch a new voluntary trade agreement on barriers to trade in food. If Doha’s demise demonstrates that broad multilateral negotiations are not currently feasible, the United States should consider launching a new “plurilateral” (i.e., voluntary participation among a subset of WTO members) trade agreement on barriers to trade in food. Such a deal could be narrow in scope like the WTO’s Information Technology Agreement and cover only food tariffs, or it could be broader like the Trade in Services Agreement (TiSA) and cover tariffs, non-tariff barriers, health/safety issues, and subsidies. While each approach has potential costs and benefits (e.g., a narrow deal could be done quickly but would omit important non-tariff barriers), the simple elimination of tariffs would be economically beneficial and relatively easy politically.
Increase trade barrier and subsidy monitoring, reporting, and (if necessary) litigation. Although the United States has many mechanisms with which to assess and attack global farm trade barriers and subsidies, these mechanisms are not being fully utilized. On the assessment front, the USTR should expand its annual National Trade Estimate (NTE), both to include more detailed information on global agricultural trade barriers and to address trade-distorting domestic subsidies (as opposed to only export subsidies) and trade-remedy measures. The NTE also should be supplemented with an ITC Section 332 report on the economic effects of these agricultural trade barriers, including commodity-specific analyses. (The ITC regularly conducts ad hoc analyses on a country-specific and commodity-specific basis but does not undertake an annual market assessment.)
The United States should rely on these analyses to be far more aggressive at the WTO. First, the United States should be more public and forceful in the WTO’s regular work—in the Committees on Agriculture, Subsidies and Countervailing Measures and Sanitary and Phytosanitary Measures—with respect to members’ farm trade barriers and unwillingness to participate fully in the WTO’s mandatory transparency and reporting requirements. (Members are required to provide periodic reports on various trade barriers, but many are unwilling to do so on a regular basis.) The United States recently took this more aggressive approach with China; it should do the same with other large WTO members. Members’ continued refusal to abide by their WTO obligations should be mentioned specifically in the NTE.
Second, the United States should stop being so hesitant to litigate agricultural trade barriers and subsidies through WTO dispute settlement. As noted, the United States has been very successful in achieving the elimination of farm trade barriers through WTO disputes but has filed very few cases against members’ farm subsidies, despite substantial increases in these measures over the past few years. The WTO provides the optimal venue for these disputes because it permits the United States to challenge subsidies that harm U.S. agribusiness interests not only in the domestic market, but also in foreign markets, including the market of the subsidizing member. Domestic countervailing duty investigations provide another venue for anti-subsidy challenges but isolate the injury review to the U.S. market (thus requiring substantial foreign imports) and often result in duties on imports (and thus taxes on consumers) that far exceed the level of subsidization actually occurring.
Despite decades of liberalization through successes like NAFTA and the WTO, many costly, trade-distorting subsidies and barriers remain in place both in the United States and abroad. Reform is necessary, and experience here and elsewhere shows that the elimination of these non-market measures would not destroy the U.S. farm sector; in fact, the sector would grow even stronger.
Congress should enact reforms that convert the U.S. farm trade system into one that better reflects free-market principles, limits government intervention on behalf of well-connected cronies, and offers a broader array of benefits to U.S. consumers and the economy. These reforms also would give the United States the moral authority to demand more of its trading partners through trade negotiations and dispute settlement. Trade has provided immense benefits to the U.S. and global agricultural sectors, but the job is not yet complete.
—Scott Lincicome is an international trade attorney, a Visiting Lecturer at Duke University, and an Adjunct Scholar at the Cato Institute.
Appendix 2: Examples of Regulatory Barriers
COOL. The United States implemented mandatory Country of Origin Labeling (COOL) requirements that imposed burdensome new rules on most imports, including meat from Canada and Mexico. Among COOL’s many rules, eligibility for the coveted designation of “U.S. origin” could be derived only from an animal that was born, raised, and slaughtered in the United States. For many U.S., Canadian, and Mexican ranchers and meat-packers that share grazing land across borders and have integrated supply chains, compliance with COOL’s onerous system was impossible. The USDA estimated that the COOL regime imposed $2.6 billion in implementation costs on U.S. producers, packers, and retailers ($1.3 billion for beef alone); resulted in economic welfare losses totaling $8.07 billion for the U.S. beef industry and $1.31 billion for the pork industry; and, despite some “small” economic benefits for consumers in the form of increased information, would “result in an estimated $212 million reduction in consumers’ purchasing power” by 2019.
In December 2008, Canada and Mexico challenged the COOL regime at the WTO, arguing that the COOL standard deviates from international labelling standards, does not fulfill a legitimate regulatory objective, and would exclude all beef or pork produced from livestock exported to but slaughtered in the United States. In May 2015, the WTO Appellate Body ruled against the United States in its final appeal and agreed with Canada and Mexico about the discriminatory effect of the original and since-modified COOL regimes. After more than seven years of litigation and the threat of WTO-sanctioned retaliation by Mexico and Canada, the United States finally repealed the COOL system in early 2016.
Tuna. Along with import tariffs, the United States also maintains an onerous regulatory regime that establishes a voluntary “dolphin-safe” label on tuna products and conditions access to that label on the provision of documentary evidence that varies depending on the area where and the method by which the tuna is caught. The regime has resulted in an effective ban of tuna imports from Mexico and has been widely criticized as both protectionist and misleading because it arbitrarily bans the sale of dolphins caught by environmentally sound methods.
Mexico brought a WTO dispute settlement complaint against the regime (U.S.–Tuna II) in 2008, and the WTO Appellate Body has repeatedly found that the regime is in fact discriminatory and thus WTO-inconsistent. Mexico now could be authorized to retaliate against U.S. exports to the tune of billions of dollars.
Biofuels. Although U.S. import duties on ethanol have been lifted, the Renewable Fuel Standard (RFS) still provides the U.S. biofuels industry with ample opportunity to restrict foreign competition. For example, in March 2015, the U.S. biodiesel industry challenged a U.S. Environmental Protection Agency (EPA) decision to permit Argentinian imports to qualify as RFS-compliant. An EPA decision to side with the domestic industry would effectively ban Argentinian imports from the U.S. market.
Catfish and Shrimp. Although safety inspections for imported seafood are typically undertaken by the U.S. Food and Drug Administration, the 2008 farm bill was subjected to a new and more onerous system administered by the USDA. An earlier Heritage Foundation study concluded that the program would have serious trade implications because it would harm foreign catfish exporters, reduce competition, raise prices for consumers, and subject U.S. exporters—likely in industries other than catfish—to retaliation.
The U.S. Government Accountability Office concluded that the program is unnecessary and would not improve safety as alleged, and the program is opposed by both the Obama Administration and many Members of Congress. Nevertheless, as a result of lobbying by a few key Senators representing domestic catfish special interests, the 2014 farm bill did not kill the program. The USDA issued its final rule in November 2015 with an effective date of March 1, 2016. Some have suggested that the program, instead of being repealed, could be expanded to shrimp imports. Catfish and shrimp imports have long been the subject of U.S. protectionism and currently face significant duties under U.S. trade-remedy laws.