International Policy

1. International Policy • Live in a global economy where: • Interdependence means that any policy decisions made by one country has a impact on the U.S. • Many ag markets are global in scope thus while the price of corn may be in the US, there is a global market influenced by world supply and demand forces • The exceptions to this global market are few and are limited to those commodities that have been able to isolate themselves through barriers to trade (successful only in varying degrees) Read Chapters 4, 5, 6 Knutson, Penn and Flinchbaugh 19

2. North America Free Trade AgreementNAFTA • Really 3 Separate Trade Agreements • Canada – US Trade Agreement (CUSTA) effective in 1989 • Canada – Mexico Trade Agreement effective in 1993 • US – Mexico Trade Agreement effective in 1994 • Farm Policy Harmonization is a major problem

3. North America Free Trade AgreementNAFTA • CUSTA – 1989 • Tariffs on most commodities phased out over 5-10 year period with following important exceptions being Tariff Rate Quotas (TRQ) on: • Poultry: Canadian Poultry Board • Dairy: Canadian Dairy Board and US price supports • Sugar: US price supports • A TRQ allows a certain amount of imports at a lower tariff (sometimes zero) with impacts above the quota assessed a higher tariff. Example the TRQ in Canada for cheese is 245% of the price at 20,412 MT. For the US it is 58% at 134,995 MT.

4. North America Free Trade AgreementNAFTA • US – Mexico Trade Agreement in 1994 • Convert all trade barriers to tariffs (Mexico had extensive licensing of imports) and then reduce to zero over 5-15 years.

5. North America Free Trade AgreementNAFTA • Overall provision that has caused conflict involves the ability of the three countries to maintain their own domestic farm programs (subsidies) in the setting of freer trade – reductions in tariffs. • If free trade is to exist there must be harmonization of policies.

6. North America Free Trade AgreementNAFTA • Basic method for dispute settlement involves the establishment of Panels which act as “judges” of who did what to whom (legal rights and obligations) • Members of these panels include: • 2 members chosen by one country • 2 members chosen by the other country • 1 mutually agreed upon chair • Original agreements had a provision for continuing discussion to eliminate domestic program issues but no Secretariat was established (comparable to EU Commission) to continue to process of negotiation

7. Canada Policies • Canadian Wheat Board (CWB) • No production controls • All wheat and barley marketed through CWB except that fed on farm • Strict Controls over quality • Emphasis on protein content • Controls varieties planted • CWB markets wheat to domestic and export markets • Pools all receipts from marketing • Pays producers the average price adjusted for quality • Payments in increments as sales take place • Closes out the pool at end of marketing season • Little or no carryover

8. Canada Policies • Canadian Wheat Board acts as an effective barrier to trade by virtue of its marketing requirement • The price incentive is to move wheat south rather than north • Dairy and poultry boards have high TRQs combined with marketing quotas limiting the quantity of product that can be sold • Net Income Stabilization Account (NISA) program whereby farmers can deposit with the government up to 3% of sales revenue which is matched up to $250,000 each year with an account limit of 1.5 X 5 year average sales • Withdrawals are allowed in low income years

9. Mexico Policy • Mexican Farm Supports • SAGARPA: USDA of Mexico • PROCAMPO: Small farmer payments • Market support payment: Pays difference between government determined target price and market price • Maintains sugar industry • Discourages fructose in soft drinks

10. Mexico Policy Issues • Concern about level of U.S. subsidies • Imports of poultry and hogs • Lower price of corn and soybeans • Corn staple • Input for livestock and poultry • Input for HFCS production • Results in low prices for poultry and hogs • Deny access to U.S. sugar market • Share of U.S. imports • HFCS imports to Mexico

11. Mexico Policy Issues • Research/Extension: Weak • Infrastructure • Roads: Border issue • Railroads: Privatization • Utilities • Irrigation development • Plant and animal protection

12. Comparison of Mexican and U.S. Agricultural Production

13. Geopolitical Centers of Influence • Countries or groups (blocs) of countries that have (or could have a major impact on U.S. agriculture and agribusiness • Some individual countries are in this position now, have been, or will be • Mexico • Canada • Japan • China • Russia • Some are organized into blocs • NAFTA • EU • MERCOSUR/FTAA • Cairns group • APEC

14. Geopolitical Centers of Influence • Then there are the developing countries • Largely ignored up to now • Want preferred access to developed country markets • There are interest groups outside the countries and blocs that try to influence the world agenda • Greenpeace • UN/FAO

15. U.S. • 9.6 M sq km • 19% arable • 214 sq km irrigated • 280 M people • Ag • Corn, soybean, wheat, chicken, beef, milk, pork • Export 2 of 5 acres • Ag policy • Export-oriented • Farmer safety net substantial

16. Canadian Agricultural Production

17. Canada WTO Box Status • NISA? • Dairy and poultry boards? • CWB?

18. Mexico/Canada/US • Basic need exist for harmonization of policies • Farm subsidies • Market information • Grades and standards • Infrastructure • Plant and animal protection