Agricultural Trade in the Free Trade Area of the Americas

Publication Date: October 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

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Abstract:

Leaders of Western Hemisphere countries have agreed to negotiate a Free Trade Area of the Americas (FTAA) agreement by 2005. FTAA's objective is to promote economic growth and democracy by eliminating barriers to trade in all goods (including agricultural and food products) and services, and to facilitate investment. If diplomats reach agreement, free trade in the hemisphere could occur by 2020.

Negotiations on FTAA's agriculture component have become contentious. FTAA's negotiating objectives for agriculture call for removing tariffs and other barriers to agricultural imports in each country, developing disciplines on the use of export subsidies and other mechanisms that distort agricultural trade, and ensuring that rules on food safety and animal and plant health are not used as disguised trade barriers. Following an agreed-upon timetable, FTAA countries during 2003 exchanged detailed offers and counteroffers designed to reduce and eliminate tariffs and quotas on all traded goods. The agriculture chapter in the second draft consolidated text of an FTAA agreement issued in November 2002 continues to reflect differences in viewpoints among countries on substantive agricultural issues. Strong differences currently exist between the United States and Brazil over how to address in the FTAA the issue of domestic farm subsidies and agricultural export subsidies. This issue has become pivotal in efforts to reach an agreement on FTAA's scope (comprehensive or scaled back) in the period leading up to the FTAA Ministerial in Miami on November 17-21.

Much of U.S. agricultural trade with Canada and Mexico already occurs free of barriers under the North American Free Trade Agreement. Accordingly, an FTAA would primarily affect U.S. agricultural trade with the countries of South America, Central America, and the Caribbean. Sales to these three markets currently account for a small share (8%) of U.S. farm product exports. Agricultural imports from these three regions, by contrast, account for 17% of all such U.S. imports.

A 1998 U.S. Department of Agriculture analysis finds that U.S. agriculture would benefit to some degree with U.S. participation in an FTAA that eliminates all tariffs throughout the region. According to this analysis, U.S. farm income would be $180 million (1%) higher than without an agreement, U.S. agricultural exports would increase by $580 million (1%), and U.S. agricultural imports would rise by $830 million (3%).

Some agricultural product sectors expecting to gain from increased sales are supportive of the FTAA initiative. Others appear to be ambivalent, preferring instead that the Bush Administration place more emphasis on liberalizing agricultural trade on a multilateral basis under the WTO. Producers of import-sensitive food products (i.e., sugar and orange juice) are concerned about increased competition. They seek to be excluded from FTAA coverage or be covered by the longest transition periods possible. Under trade law, the Executive Branch must follow special consultation procedures with Congress on import-sensitive agricultural products covered by the FTAA agreement. This report will be updated periodically .