Agricultural Trade in the Free Trade Area of the Americas

CRS Report for Congress
Agricultural Trade in t he
Free Trade Area o f t he Americas
Upda ted Octobe r 31, 2003
Specialist in Agricultural Policy
Resources, Sc ience, and Industry Division

Congressional Research Service ˜ The Library of Congress

Agricultural Trade in the
Free Trade Area of the A mericas
Leaders o f W estern Hemisphere countries have agreed to nego tiate a Free T rade
Area of the Americas (FTAA) agreement b y 2005. FT AA’s objective i s t o p romote
economic growth and democracy by eliminat ing barriers to trade in all goods
(including agricultural and food products) and services, and to facilitate investment.
If diplomats reach agreem ent, free t rade in the h emisphere could o ccur b y 2020.
Nego tiations on FTAA’s agriculture componen t h a ve become contentious.
FTAA’s n ego t i a t i n g objectives for agriculture cal l for removing tariffs an d o ther
barriers t o agricultural imports in each country, d eveloping disciplines on the u se of
ex port s ubsidies and other m echanisms that di stort agricultural t rade, and ensuring
that rules on food safety and animal and pl ant h ealth are not used as disguised t rade
barriers. Fo llowing an agreed-upon timetable, FTAA countries during 2003
ex changed d etailed o ffers and counteroffe rs design ed to reduce and eliminate t ariffs
and quotas on all t raded goods. T he agriculture chapter i n t he second draft
consolidated tex t of an FT AA agree m e n t i s s u ed in November 2002 continues t o
reflect differences in viewpoi nts among countries on substantive agricultural i ssues.
Strong differences currently ex ist bet ween the United S tates and Braz il over how to
address i n t he FTAA the i ssue o f domestic farm subs idies and agricultural ex port
subsi d i es. Thi s i ssue h as becom e pi vot al i n effort s t o reach an agreem ent o n FTAA’s
scope (comprehensive or scaled back ) i n t he period leading up to the FTAA
Ministerial i n M iami on November 17-21.
Much of U.S . agri cul t u ral t rade wi t h C anada and M ex i co al ready o ccurs free o f
barriers under t he North American Free Tr ade Agreement. Accordingl y, an FT AA
would p rimarily affect U.S. agricultural t rade with the countries of South America,
Central America, and t he Caribbean. S ales to these t hree markets currently account
for a small s hare (8%) of U.S. farm product ex ports. Agricultural imports from t hese
three regions, b y contrast, account for 17% of all s uch U.S. imports.
A 1998 U.S. Department of Agriculture analys is finds that U.S. agri c u l t u r e
would benefit to some degree with U.S. participation i n an FTAA t hat eliminat es al l
tariffs throughout the region. According t o t his analysis, U.S. farm income would b e
$180 million (1%) h igher t han without an agreement, U.S. agricultural ex ports would
incr ease b y $580 million (1%), and U.S. agricultural imports would rise b y $830
Some agricultural p roduct s ec t o r s e x p ecting t o gain from i ncreased sales are
supportive o f t he FTAA initiative. Others app ear to be ambivalent, p referring instead
that the Bush Administration place more em phasis on liberalizing agricultural t rade
on a m ultilateral basis under t he WTO. Producers o f import-sensitive food products
(i.e., sugar and orange juice) are concer ned about increased competition. They seek
to be ex cl uded from FTAA coverage or be covered b y t he longes t t ransition p eriods
possible. Under t rade law, the Ex ecutive Branch m ust follow s pecial consultation
procedures with Congress on import-sensitive agricultural p roducts covered b y t he
FTAA agreement. This report will be updated p eriodically .

Background ......................................................1
U.S. AgriculturalTradein theWestern Hemisphere .......................1
NegotiatingProcessandTimetable ....................................3
KeyNegotiatingIssues ..............................................5
Market Access ................................................6
AverageAgriculturalTariffs in FTAAArea .....................6
Transition P eriods .........................................6
U.S . Market Access O ffer ...................................7
ExportSubsidiesandOtherTrade-DistortingPolicies .................7
ExportSubsidies ..........................................7
Domestic Support .........................................8
StateTradingEnterprises(STEs) ..............................8
Sanitary and P hytosanitary (SPS) Rules ............................9
OtherIssues AffectingAgriculturalTrade ...........................9
OtherIssues ofInterest to U.S. Farm Sector ............................10
FTAA’sPossibleImpact on U.S. Agriculture ...........................10
RoleofCongress inFTAANegotiations ...............................11
Perspectives .....................................................12
Table 1 . U.S. Agricultural Trade Balance with FTAA Countries, b y
Regi on, 2002 .................................................2
Table 2 . U.S. Agricultural Ex ports to FTAA Countries, 2002 ...............3
Table 3 . U.S. Agricultural Imports from FTAA C ountries, 2002 .............3

Agricultural Trade in the
Free Trade Area of the Americas
In 1994, at the first Summit of the Americas, t he leaders o f t he 34 countries in
the W es tern Hemisphere agreed to negotiate a Free T rade Area of the Americas
(FTAA). FTAA’s s tated objective i s t o reduce and eliminat e barriers t o t rade in
goods (including agricultural commod ities a n d food products) and services, and
facilitate cross-bo rder investment, allowi ng all countries to trade and invest with each1
other under t he same rules. At their s econd Summit in 1998, they formally initiated
nego tiations to create a h emispheric free t rade a r e a by the year 2005. At the t hird
Summit in Quebec City i n A p ril 2001, leaders assessed p rogress t o d ate b y n ine
nego tiating groups, agreed to conclude the n egotiations by J anuary 2005, and t o b ring
the FTAA i nto effect no later t han December 2005.
Fo llowing the timetable agreed upon in Quebec City, F T A A c o untries during
2003 have ex changed d etailed o ffers and counteroffers design ed to reduc e and
eliminate t ariffs and quotas on traded goods . In N ovember 2002, trade ministers
rel eased t h e s econd draft consol i d at ed t ex t of an FTAA agreem ent coveri ng al l i ssue
areas. S ubst ant i al d i fferences i n vi ewpoi nts continue to be reflected in the FTAA’s
chapter on agriculture, particularly on the i ssue of d o m es tic farm subsidies. Many
note t hat n egotiating free t rade in agri cultural p roducts c o u l d p rove to be one of
several difficult issues in the FTAA t al ks, as was the cas e i n t he negotiations between
the United S tates and Mex i co on the agricultural provisions of the North American
Free Trade A greem ent (NAFTA).
U.S. Agricultural Trade i n the Western Hemisphere
Hemispheric t rade liberalization would directly affect U.S. agricultural t rade
with the countries l o c a t e d in South Ameri ca, Central America, and t he Caribbean
(ex cept C uba). Trade i n m ost agricultura l p roducts with Canada and M ex ico already2
is, o r wil l w i t h i n a few years b ecome, free under NAFTA’s terms. Also, a large

1 See CRS Issue Bri e f IB95017, Trade and the Americas , updated r egularly; CRS Report
RS20864, A Free Trade Area of the A mericas: Status of Negotiations and Major Policy
Issues ; a nd CRS Report 98-840, U.S.-Latin American Trade : R ecent Trends, f or broader
2 T ariffs and quotas on most agricultural pr oducts traded between the United S t a t e s a n d

portion o f t h e agricultural p roducts imported from outside the NAFTA trade b loc
already enter the United S tates duty free under v arious trade p refe rence p rograms.
Im ports from t he Caribbean and C entr a l A m e rican countries arrive under t he
Caribbean Basin Initiative. Those from Bolivia, C olombia, Ecuador, and Peru enter
under t he Andean Trade P reference Act. Imp o r t s o f certain agricultural p roducts
from o ther countries in the h emisphere are eligibl e to enter free under t he
Generaliz ed System of Preferences (GSP). C ountries that take advantage o f t hese
programs, t hough, are not required t o o ffer tariff concessions on agricultural o r o ther
products imported from t he United S tates.
The United S tates i n 2002 recorded a $2.8 billion d eficit in agricultural t rade
with the non-NAFTA countries of the W es tern Hemisphere. Deficits occurred i n
two-way t rade with the S outh Ameri c a n and C entral Amer ican countries.
Agri cul t u ral t rade wi t h t h e C ari bbean nat i ons generat ed a not i ceabl e surpl u s (Tabl e


Table 1. U .S. Agricultural T rade Balance
w ith FTAA C ountries, by Region, 2002
South Ame rica 1,788 4,704 - 2,915
Central Ame rica 1,251 1,960 - 709
Caribbean 1,202 353 849
FT AA (excluding NAFT A) 4,242 7,017 - 2,775
NAFT A (Canada & Mexico) 15,905 15,866 39
T otal, FT AA 20,147 22,883 - 2,736
Sour ce: Derived from T ables 2 and 3
U.S. agricultural ex ports to the FTAA countries in the h emisphere (ex cluding
Canada and M ex ico) totaled $4.2 billion l as t year (Table 2). T hese sales represented

8% of worldwide U.S. agricultural ex ports, o r 21% of far m e x p o r t s t o the region.

Farm and food ex ports to both NAFTA partners totaled $15.9 billion (accounting for

30% of worldwide s ales, o r 79% of ex ports to the o ther 33 FTAA countries).

U.S. agricultural imports from FTAA countries (ex cluding NAFTA partners)
totaled $7.0 billion i n 2002 (Table 3). Entries accoun t e d f o r 1 7 % o f all U.S.
agricultural imports, o r 31% of imports from t he regi on. Food imports from C anada

2 (...continued)
Mexico disappeared on J a nuary 1, 2003. Protection on t he few r emaining products will end
in 2008. With a f ew important exceptions (sugar, dairy products, poultry) , t here already i s
free t rade in agricultural products between the United States and Canada.

and M ex ico t otaled $15.9 billion (represen ting 38% of worldwide purchases, o r 69%
of such imports from t he other 3 3 FTAA countries).
Table 2. U .S. Agricultural Exports to FTAA C ountries, 2002
South Ame rica 1,788 3.4 8.9
Central America 1,251 2.4 6.2
Caribbean 1,202 2.3 6.0
FT AA (excluding NAFT A) 4,242 8.0 21.1
NAFT A (Canada & Mexico) 15,905 29.9 78.9
T otal, FT AA 20,147 37.9 100.0
So ur ce: USDA
Im ports of agricultural p roducts from t he hemi sphere that compete with the
output of U.S. domestic producers accounted for 80% of the t otal. Non-competitive
products not produced domestically (such as bananas and coffee) represented 20%
Table 3. U .S. Agricultural Imports from FTAA C ountries, 2002
South Ame rica 4,704 11.2 20.6
Central Ame rica 1,960 4.7 8.6
Caribbean 353 0.8 1.5
FT AA (excluding NAFT A) 7,017 16.7 30.7
NAFT A (Canada & Mexico) 15,866 37.8 69.3
T otal, FT AA 22,883 54.6 100.0
So ur ce: USDA
Negotiating Process and Timetable
Discussions on how to proceed to eliminate border p rotection and other b arriers
to agricultural t rade have occurred p rimaril y i n two o f t he nine formal nego tiating
groups created for FTAA negotiations. These are the Negotiating Group on
Agriculture (NGAG), and the Negotiating Group on Market Access (NGMA). T heir
focus has been on identifyi ng the key issues and formulating t he rules t o be followed
in nego tiating h emispheric free t rade in agricultural and food products. Their work

resulted i n t he consolidation b y t he end o f 2000 of the first “bracketed” FTAA d raft
agreem ent . 3 Two chapters l aid out tex t on agricultural p rovisions and guidelines on
h o w market access for agricultural p roducts should b e n egotiated, respectively.
Trade ministers released a second consolidated draft tex t in November 2002. 4 It s
agriculture chapter reportedly differs little from t he tex t in the first draft, continuing
to reflect the wide range o f positions between individual countries, o r groups of
S eek ing t o k eep to the timetable adopted at the April 2001, Quebec Cit y
summit, trade min i s t e r s in Augu st 2002 reached agreement o n t he “methods and
modalities” (the procedures , formulas, target s , ru l e s , and timetables used to put
negotiating objectives into practical terms) to be followed t o m ake t ariff reductions
(see Mark et Acc e s s below for background). This p rovided t he basis for each
country to prepare for the p rocess o f ex changing t arif f a n d o t her m arket access
concessions on a p roduct- or sector-specific b asis. Trade ministe r s agreed that all
countri es (ex cept C ARIC OM members — comprising most Caribbean islands,
Bel i z e i n C ent ral Am eri ca, and G uyana and S u ri nam e i n S out h A m eri ca) coul d s t art
tariff cuts from current applied rates rather than from t he high er bound rates t hat all5
W TO m embers adopted in the l ast m ul tilateral negotiating round. CARICOM
countries will be allowed t o i dentify t hose agricultural and other p roducts where t he
max imum bound rate could b e u sed as t he reference point for reducing t ariffs. T he
November 1, 2002, meeting o f t rade ministers in Ecuador finaliz ed the n egotiating
pace and p rocess t o b e followed over t he 2003-2004 period. These final stages of the
FTAA negotiations are bei ng co-chaired by Braz il and t he United S tates. All FTAA
countries met t he February 15, 2003 deadline for presen ting t heir initial t ariff
reduction o ffers (see U.S . Mark et Access O f f er for i nf o r m a tion on what U.S.
nego tiators ta b l e d ) . E a c h country was ex p ected to respond to these i n t he form of
market access requests, due by J une 15, 2003. The s chedule t hen called for revised
offers to follow t his “request-offer” process b y J uly 15, 2003.
For t he United S tates, the Office of the U.S. Trade Repres entative (USTR) i s t he
lead agency involved i n n egotiating t he FT AA. Other d epartments, particularly the
agencies of the U.S. Department of Agricu lture (USDA), p rovide input to USTR and

3 T his refers to the t ext t hat each country proposes be included i n t he FT AA agreement.
Because the l anguage from t he 34 participating countries includes both areas of agreement
and disagreement, the convention i s t o l ay out each country’s text within brackets. Because
of the wide r ange of vi ews, the chapters on a gr iculture and market access are heavily
4 T he s econd draft of t he Chapter on Agr iculture can be accessed at
[ s phere/ftaa2002/tnc-w-133-04of12-eng.pdf].
T he Chapter on Market Access can be vi ewed at
[ s phere/ftaa2002/tnc-w-133-07of12-eng.pdf]
5 A “bound” tariff rate represents the maximum that a country agrees to impose on i mports
of a particular product, and i s based on the outcome of negotiations under t he last
multilateral negotiations (the Ur uguay Round). T hese bound rat e s are incorporated as an
integr al component of a country’s schedule of concessions or commitments to other World
T r ade Organization members. However, f or various reasons, a country ma y d e c i de to
impose a l ower, or “applied,” tariff rate.

have assi gn ed st aff t o s erve as ex per t s t o l ead nego t i at o rs. U S D A represent at i v es
have also been actively i nvolved i n d evelopi ng the U.S. positions in relevant areas.
Key N egotiating Issues
FT AA trade ministers in 1998 agreed on several objec t i v es to be followed i n
nego tiating h emispheric free t rade in agri cultural p roducts. These have gu ided the
work of the NGAG and t he NGMA. The p ertinent objectives call for:
! eliminating t hose m easures that countries use t o restrict t he entry o f
agricultural p roducts into their m arkets,
! developing disciplines on the u se of ex port s ubsidies and other
mechanisms that can distort t rade in agricultural p roducts, and
! ensuring that rules t o protect food safety and plant and animal health
will be based on s ci ence, and not applied on a discriminat ory bas is
or as a disguised trade res triction.
FTAA n e go t i at o rs were al so i n st ruct ed t o i n corporat e p rogress m ade i n t he
current multilateral n egotiations on agri culture sponsored by th e W orld Trade
Organization (WTO),6 and t he results of the review of W TO’s multilateral agreem ent
on the application of food safety and agricultural health rules i n i nternational t rade.
These FTAA objectives are elaborated on below, with relevant background. Fo r
each issue, the U.S. p o s ition, and t he pos itions or views o f o ther countries when7
known, are s ummariz ed. The USTR noted in 20 0 1 that “U.S. agricultural
nego tiators [ p articipating i n t he NGAG] will continue to work with the agricultural
community to addres s appropriately import sensitivities and ex port i nteres ts.” Thes e
positions are reflected in US TR’s October 2002 notification t o congressional l eaders8

of the U.S. negotiating objectives in the FTAA negotiations.
6 For backgr ound and discus s i o n o f ke y i ssues, s ee CRS Report RS21085, Agriculture in
WTO Negotiations .
7 This report’s description of t he U.S. position i s based on the “Public Summary of U. S.
Position” relative t o t he FT AA Negotiating Group on Agriculture and t he FT AA Negotiating
Group on Market Access, issued by UST R, J anuary 17, 2001, and r eferred t o i n press release
01-06. These t wo U.S. position s ummaries are available at
[ sphere/agr i.html ] and
[ sphere/mkt .html ].
Additional i nforma tion a t UST R on t he FT AA negotiations is found at
[ sphere/ftaa.shtml].
8 USTR Ambassador Robert Zoellick l etter t o House Speaker J . Dennis Hastert and Senate
President pro T e mpore Robert C. Byrd, October 3, 2002, available a t
[ 2002/10/2002-10-03-ftaa-house.PDF].

Countries use t ariffs an d t ariff-rate quotas (TRQs) to protect certain economic
sectors o r s pecific p roducts against im port competition. [ TRQs allow z ero or l ow-
duty acc e s s for specified amounts o f a commodity or product. Im ports above the
quota amount may s till enter, but face a v ery high t ariff rate.] To address t his t yp e
of border protection, on e m aj or FTAA objective i s “to progressively eliminat e,
tariffs, and non tariff barriers, as well as other m e a s u r e s with equivalent effects,
which restrict [ agricultural] trade b etween participating countries.” Trade ministers
agreed that “al l t ariffs will be subj ect to negotiat i on,” but allow for flex ibility in
negotiating “different trade liberalization timetables .” Further, negotiations on
market access for agricultural p roducts a r e t o b e conducted “to facilitate the
integration of smaller economies [ i.e., t he Caribbean and C entral American nations]
and t heir full participation i n t he FTAA negotiations.”
The U.S . p roposal cal l ed for form ul at i n g m arket access r ul es that apply similarl y
to both agricultural a n d non-agricultural p roducts. In o ther words, trade i n
agriculture is not to be treated any d ifferently than trade i n m anufactured goods. The
U.S. position i s reported t o advocate p rocedures that “ensure that the b enefits of free
trade are broadly d istributed,” and p ropos ed that most tariffs be rapidly reduced.
USTR stat ed, with likel y implications for a gricultural t rade, t hat t he details of the
U . S . position t ake i nto account “product s ensitivities i n a framework that is f u l l y
consistent” with WTO disci plines.
Average Agricultural Tariffs in FTAA Area. Average t ari ffs on
agricultural imports are l ower in the W es tern Hemisphere compared to many other
regi ons around the world. The gl obal average tariff on such imports i s 62%,
com p ared t o t h e U .S . average (12%). For regions covered b y t he FT AA, the average
bound tariff is 25% for North America, 39% for S outh America, 54% for C entral9
Am eri ca, and 86% for t h e C a r i b b e a n Is l ands. However, appl i ed t ari ffs can be
considerably l o wer t han bound rates. Fo r ex ample, applied t ariffs for agricultural
products averaged between 11% and 17% for C entral and S outh America during t he
1995-99 period. These regional averages m ask t he range o f p rote c t i o n b etween
commodities i n any country, and do not fully reflect the u se of TRQs by many
countries in the W estern Hemisphere (incl uding the United S tates), m any o f which
apply p rohibitive t ariffs on above-quota im ports. R eflecting FTAA’s objective, the
target would be t o reduce t ariff l evel s t o z ero and to eliminat e TRQs by t he end of t he
agreed-upon transition p eriod, likely t o b e about 2020. This part of the n egotiating
p r o c e s s w ill be a d ifficult process, as some countries seek ex cep tions for s pecific
commodities o r p roducts that currently receive protection under restrictive TRQs.
Transition Periods. The U.S. proposal on FTAA’s timetable a n d p ace of
tariff elimination i s b ased in part o n W T O r u l es, which require countries in a free
t r ade area t o eliminat e t ariffs and other forms of protection on m ost of t h e i r t r ad e
within 10 years. Some FTA A p a rticipants, t hough, acknowledge t hat s ome
politically-sensitive agricultural products may n eed to be allowed a transition o f u p

9 USDA, Economic Research Service, Profiles of Tariffs in Gl obal Agricultura l M arkets,
J a nuary 2001, pp. iv, 11.

to 20 years t o adjust t o competition b efore tariffs or quotas disappear. T hey refer to
the p recedent s et in NAFTA, which provided for a 1 5 year transition t o free t rade on
the m ost sensitive agricultural produ cts scheduled to enter Mex ico and the United
S t a t es (i .e., froz en concent rat ed orange j u ice, peanuts, and s ugar imported i nto t he
United S tates from M ex ico; and corn, dry beans, milk powder, and s ugar imported
by Mex i co from t he United S tates).
U. S . Ma rket Access Offe r. USTR’s Ambassador Robert Zoellick, o n
February 11, 2003, laid out the s cope of the U.S . t ariff reduction o ffer o n agricultural
and o ther products. In unveiling t his o ffer, he said that the United S tates i s p repared
to grant immedia t e duty-free access o n 56% of the agricultural p roducts that enter
from non-NAFTA countries once t he agreem ent t akes effect . O n po litically-sensitive
farm products, Ambassador Zo ellick s tated t hat t he Un i t ed S tates p roposes to
eliminate t ariffs with specific timetables that would differ b et w een countries or
regi onal groups. Transition p eriods could be 5 or 10 years, or even longer, d epending
upon a country’s siz e and its level o f eco nomic development, and o n t he type of
agricultural p roduct. He indicated all agr icultural p roducts are o n t he table and
subject to negotiation (i.e., no ex clusions), and t hat t he United S t ates will move
forward with other countries willing t o t ake t he same position.
Expor t S ubsi di e s a nd Other Tr a de-Di s tor t i ng P ol i c i e s
Governments u se various mechanisms t o support t heir farm sectors and to
facilitate agricultural ex ports. The Uruguay R ound’s Agreement o n A gr i c u lture
(URAA) lists those det erm i n ed to distort agricultural t rade, and requires t hat
countries now follow some disciplines on their use. The Agreement, among other
things , s pelled out commitments and a timetable for governments t o reduce ex port
subsidies and domestic support. Other m echanisms (i.e., ex port credits, activities o f
stat e t rading enterprises) cl aimed t o distort trade were i dentified for future trade t al ks,
are o n t he agenda of th e W TO multilateral n egotiations now underway, and have
surfaced i n t h e FTAA d ebat e.
Export S ubsidies. Though t he W TO Agreement i ntroduced some discipline
on the use of ex port s ubsidies, WTO rules still allow countries to subsidize ex ports
of commodity surpluses. As a res ult, ex port subsidies continue to distort i nternational
trade i n agricultural and food products by gi ving a p rice advantage t o t he ex porter.
Though s ubs i d i z e d s ales reduce t he price an importing country pays , t he price t hat
other e x p orting countries receive for t he same product s old i nto o ther markets
frequently is less than would be otherwise.
Two FTAA negotiating objectives agreed to by hemispheric t rade ministers in
their 1998 San J ose Declaration address t hi s i ssue. One calls for t he elimination o f
“agricu ltural ex port s ubsidies affecting t rade in the Hemisphere.” The o ther requires
agricultural negotiators “t o i dentify other trade-distorting practices for agricultural
products, i nc l u d i ng those t hat h ave an effect equivalent to agriculture ex port
subsidies, and b ring them under greater discipline.”
The U.S. position reaffirms t he FTAA’s goal of eliminating t h e u s e o f ex port
subsidies within the h emisphere, and proposes that the FTAA countries at the s ame
time “establish m echanisms to prevent agricultural p roducts from b eing ex ported t o

the FTAA b y non-FTAA countries with the aid of ex port s ubsidies.” This i s likely
aimed at t he European Union, which heavily subsidizes its agricultural ex ports and
actively p romotes s uch s ales to Latin Amer ican markets. The i nitial U.S. p roposal
stat es that the United S tates does not conside r e x port credits, credit guarantees,
insurance program s, and i nternational food ai d “to constitute an ex port subsidy.” The
U.S. position reflect s t he use of t he same definition of agricultural ex port s ubsidies
(i.e., direct subsidies) as is used in the URAA.
Domestic Support. S o me S outh American countries have placed the i ssue
of dome s tic farm support o n t he FTAA nego tiating agenda. This refers t o
government program s pending to support commodity prices and raise incomes o f
agricultural p roducers. These countries ar gu e, with the United S tates and enactment
of the 2002 farm bill i n mind, that such sp ending encourages farmers t o p roduce
commodity surpluses, that when ex ported i nto world markets, depress t he price t hat
their p roducers receive for t he same products. Th e y view s ome forms of domestic
support as m ore d istorting o f agricultural t rade than tariffs or other border m easures,
and want t o i nclude this issue i n t h e n e go t i a t i ons. The impetus behind their call
appears t o b e concern t hat t he access t h e y g a i n t o t he U.S . market under FTAA
liberalization will not result in much benefit t o t hem, since t h e l e v el of U.S.
protection o n agricultural imports is already quite low. Therefore, these countries’
st rat egy appears t o b e t o o ffe r t o l o w er t h ei r h i gher l evel of border p rot ect i o n o n
agricultural p roducts only i f t he United S tates agrees to reduce its level o f domestic
U.S. negotiators continue to reject this linkage. The U.S. position i s t o s eek a
recogn ition b y o ther FTAA countries that commitments t o reduce domestic support
levels can only b e achieved i n t he WTO m ultilateral n egotiations. The U.S. proposal
calls for a hemispheric agreement t o work t ogether i n t he W TO arena to substantially
reduce and more tightly discipline t rade-distorting domestic support.
In recent m ont hs, t he Uni t ed S t at es and Braz i l (now servi n g as FTAA co-chai rs)
have differed o n how to address t he issue o f domestic farm su b s i d i e s i n s eeking a
common position on t he FTAA’s end-game negotiating agenda. In responding to the
U.S. market access o ffer, which Braz i l v iews as discriminatory i n t he scope of duty-
free access i t would receive compared to other country group s i n t he hemisphere,
Braz il formulated a counter-proposal that has called i nto question wha t F T A A’s
scope should b e. It calls for: (1) t he United S tates t o n egotiate market access with
Mercosu r ( B r a z il, Argentina, Uruguay, an d P araguay) as a t rading bloc rather than
with them as indiv i d u a l countries, and (2) s hifting i nvestment, government
procurement, and i ntellectual p roperty rights (IP R) issues , along with agricultural
subsidies a n d a n t i dumping rules (advocated by the U.S.) to the Doha W TO round.
The United S tates, though, wants t o i nclude inv e stment, p rocurement and IPR in a
comprehensive F T A A a greem ent, while Braz il (seei ng its priorities not being
addressed) proposes to scale b ack the agenda to instead nego tiate a “FTAA lite.”
State Trading Ente rprises (S TEs). The United S tates “calls for t he staged
elimination of ex clusive ex port rights granted to stat e t rading enterprises engaged”
i n agricu ltural ex ports. The ai m i s t o “permit privat e t raders to participat e i n ,
compete for, and transact for ” ex ports in countries where t hey ex i st. This position
appears t o b e ai m ed at changi n g t he charact er of, for ex am pl e, t h e C anadi an W heat

Bo ard, which i s t hat country’s sole ex porter o f wheat to several Latin American
countries. If t he United S tates p ersuades other countries to include its position i n t he
FTA A , U . S . a gr i b u s i n e s s a n d c o m m o d i t y e x p o r t i n g f i r m s w o u l d have t he opportunity
to ex pand operations in countries where S TEs ex ist t o compete with them in selling
agricultural commodities for ex port.
Sanitary and P hytosanitary ( SPS) Rules
O n e F T AA agricultural n egotiating objective adopts t he W TO’s SPS
Agreem ent ’s p ri nci p l e t h at S P S m easures not be applied “in order t o p revent
protectionist trade practices and facilitate trade i n t he hemisphere.” It decl ares that
the use of such meas ures (consistent with this Agreem ent) to protect “human, animal
or p l ant life or health, will be based on s ci entific princi ples , and will not be
maintained without sufficient s cientific evidence.” Th e objective further calls for
nego tiations to follow t his Agreement t o i dentify and develop m easures “needed to
facilitate trade.”
As background, most countries have policies t o ensure food safety for humans
and t o p rot ect ani m al s and p l ant s from d i s eases, p est s , o r cont am i n ant s . T he W T O
a greem ent referred t o i n t he FTAA obj ect i v e i s t he W T O “Agreem ent o n t h e
Application o f S anitary and P hytosanitary Measures.” It includes understandings o r
disciplines on how count r i e s will establish and use t hese measures, t aking i nto
account their d irect or indirect impact on trade i n agricu l t u r a l p roducts. T he
Agreement requires countries to base thei r SPS standards o n s cience, and encourages
countries to use s tandards s et by internati onal o rganiz ations to gu ide t heir actions.
It seeks t o ensure t hat countries w i l l n o t u se SPS measures to arbitrarily or
unjustifiably discriminate against the trade of other W TO members o r t o adopt them
to disguise trade res trictions.
The U.S. position calls for FTAA countries to agree t o s trengt hen h emispheric
collaboration on m atters covered by W TO’s SPS Committee and to work together to
develop i nternational s tandards, guidelines or recommendations i n r elevant
international bodies. The U.S . objective i s t o accept and apply t he work and findings
of this WTO C ommittee, rather than creat e a s eparat e hemispheric organization, in
how FT AA countries formulat e and apply SPS measures.
Other I ssues Affecting Agricultural Trade
FTAA trade ministers agreed to assign to the NGMA responsibility for
addressing the rules of origin, customs procedures, and t echni cal t rade b arri ers t hat
apply t o agricultural p roducts. This Group is also c h arged t o d evelop rules for
safegu ards, an i ssue t hat will be monitored carefully by those countries with import-
sensitive agricultural p roducts.10

10 Rules of origin specify what i s required f or a product t o be considered to have been
produced or processed i n a cert a i n country. T hey are used in implementing free t rade
agreements to determine whether a product may benefit from t he duty preferences and other
benefits under t he FT A. Safeguards (involvi ng the one-time t emporary use of higher tariffs

The United S tates views the rules and disci plines that FTAA negotiators
devel o p i n t hese areas “cri t i cal i n det erm i n i n g condi t i ons for m arket access i n
agricultural p roducts.” The objective o f t he detailed U.S. p roposals o n t hese issues
is to ensure that sensitive p roducts receive d i fferential consideration during t he
transition t o free t rade, and that the b en efits of free t rade accrue to producers i n t he
hemisphere and not to e x p o r t e rs outside the FTAA b loc who might seek to take
advantage o f t he openings created by the n ew hemispheric free t rade environment.
Other I ssues of Interest to U.S. Farm Sector
Environmental and labor issues conti nue to be of concern i n t he wider contex t
of the FTAA n ego t i a t i ons generally, as well as t o U.S. agricultural i nterests.
Environment a n d labor provisions have b een i n cl uded i n s om e t rade agreem ent s ,
not abl y NAFTA and t he U.S . -J ordan Free T rade Agreem ent , and i n s i d e agreem ent s
and d eci si ons m ade rel at i v e t o t hese agre em ent s . However, t hese i ssues rem ai n
contentious, with some in Congress ex pressing the n eed to include such provisions
in the FTAA. Others, t hough, argu e t hat t he s e issues do not belong in trade
agreements and s hould b e addressed i n environmental o r o ther agreements.
W ith regard to agriculture, s ome U.S. farm groups have ex p r e s s e d concern
about the l evel of environmental, health, and labor standards found in the agricultural
sect ors of Latin Am erican countries. U.S. farmers that produce import-sensitive
commodities refer to these coun t r i e s ’ lower production costs, and their minimal
safet y and h eal t h requi rem ent s. For t hi s reason, t h ei r represent at i v es are concerned
that complete trade liberalization would place them in a difficult compet i tive
position, due to increased imports from countri es where farm w orkers are p aid m uch11
l o wer w ages and envi ronm ent al regul at i ons are l ax . Other farm groups, t hough, are
opposed to including labor and environmental p rovisions (such as t rade sanctions to
enforce s uch rules) i n t rade agreements. T hey s upport liberaliz ing t rade in a way that
promotes sustainable agricultural d ev elopment and improves working conditions.
FTAA’ s P ossible I mpact on U.S. Agriculture
U.S. agriculture would benefit to some degree from U. S . p art i c ipation i n an
FTAA that eliminates tari f f s t h roughout the W estern Hemisphere, according t o a
US DA analys is. 12 It found that on an annual b asis U. S . f arm income (in 1992
dollars) would b e $ 1 8 0 m i llion h igher (0.08%), total agricultural ex ports would

10 (...continued)
and/or quotas) allow producers of a covered commodity or product additional time t o adj ust
to increased import competition.
11 T he Florida Suga r Industry Labor Manage me nt Committee i n September 2003 issued a
study that details the differences in la b o r a n d environmental costs and standards between
the cane s ugar sectors of Brazil, Guatemala, and Florida. It can be accessed at
[ h t t p : / / www.f l or i d asugar l pdf / Repor t .pdf ] .
12 USDA, Economic Research Service, Fr ee Tr ade in the Americas, W RS-98-1, Nove mb er


increase b y $580 million (1%), and t otal agricultural imports would rise b y $830
This study found that the impact would v ary among commodities. Assuming
that the United S tates and Canada reso l v e t h e dispute s urrounding Braz il’s
application o f restrictive phytosanitary rules t o t heir wheat, both countries would s ee
t h ei r w heat m arket share i ncrease i n Braz i l — t h e U .S . s hare woul d l i k el y i ncrease
more than Canada’s gi ven l ower U.S. shi pping costs t o Northeast Braz il. Gains are
al so ex pect ed in U.S. ex ports of corn, s oybeans, and cotton t o t he hemisphere. Little
impact is seen on sales o f U.S. rice, meat , and dairy p roducts. A c c o r d i n g t o t his
analys is, complete t rade liberaliz ation under an F T A A w ould m ean increased
competition for U.S. sugar and orange juice. It shows t hat U.S . s u gar prices ,
production, and ex ports “cou l d d e c line s ignificantly, and imports could i ncrease”
from l ower-cost p roducers l i k e Braz i l and Guat em al a. The s t udy al so not es t h at t h e
removal of U . S . t ariffs “m ay creat e i ncentives to import l ess-ex pensive Brazilian
orange j u i ce,” a d evel opm ent t hat “m ay d i s pl ace som e Fl ori d a j ui ce.”
Role of Congress in FTAA N egotiations
Congress will take up any agreement t hat results from t he FTAA nego tiations
u nder fast t rack procedures found in Bi partisan Trade P romotion Authority A c t o f
2002 (Section 2105 of P.L. 107-210). This d et ails the p ro cess t hat C ongress must
follow t o consider legi slation s ent t o t he Hill by the Ex ecutive Branch t o implement
si gn ed t rade agreem ent s . Ot h er provi si ons st at e b road obj ect i v es for U.S . n egot i at o rs
to follow i n negotiating agricultural provisions in trade agreem ents, i ncluding those
included i n t he FTAA. 13 In the m eantime, t he Administration i s required t o consult
with Congress on speci fic agricultural i ssues as nego tiations on the FTAA and other
t rade agreem ent s proceed. Int eract i o n duri n g t he pe r i o d o f consul t at i o n o n
nego tiating p o s i t i o n s and s trategies i s i ntended t o l ay the groundwork for later
congressional consideration o f an FTAA agreement.
Detailed provisions require the Ex ecutive Branch t o follow s peci al consultation
procedures with Congress before engagi ng in, and during, trade n e g o t i a t i ons that
affect certain agricultural p roducts. S ection 2 1 0 4 p r o v ides for ex t ensive
consultations on agricultural t rade nego tiations between the E x ecu t i ve Branch and
th e House and Senate Agriculture Committees (among other congressional
committees and t he Congressional O v e r s i ght Group). S ection 2104 (b)(2) further
prescri b es speci al consul t at i o n p rocedur es and a process for US TR t o fol l o w b efore
undertaking agricultural t ariff reduction n egotiations in the FTAA and in negotiations
on other t rade agreem ents, on over 200 “import-sensitive” agricultural commodities14
and food products. It requires USTR t o:

13 For more information, see CRS Repor t 97-817, Agriculture and Fast Track or Trade
Promotion Authority, pp. 5-6.
14 T he s tatutory criterion requires UST R t o develop a list of U.S. agr icultural products that
are: (1) s ubj ect to TRQs , and (2) t hat t he United States made s ubj ect to the minimum 15%
tariff-reduction-over-s ix-years c ommitment under t he URAA.

! consult with the House Agricu lture and W ays and Means
Committees, and the S en ate Agriculture and Finance Committees,
on whether a n y further t ariff reductions on any i dentified p roduct
“should b e appropriate, t aking i nto account the impact of any s uch
t ari ff reduct i o n o n t he Uni t ed S t at es i ndustry produci n g t he product , ”
on whether any c o v e r ed p roduct faces “unjustified s anitary or
phytosanitary restrictions, i n c l u ding those not based o n s cientific
principles in contravention o f t he Uruguay R ound Agreements,” and
on whether countries in the n egotiations use e x port s ubsidies o r
other t rade-distorting m e asures o n p roducts that affect U.S.
producers o f s uch p roducts,
! request the In t e r national Trade Commission to “prepare an
assessmen t o f t he probable econo m i c effect s o f any such t ari ff
reduction o n t he U.S. industry p roducing t he product concerned and
on the U.S. economy as a whole,” and
! upon comp l e ting t hese steps, notify t he four above-identified
congressional committees of th o s e p roducts identified i n t he first
s t e p “ f o r which t he Trade R epresentative i ntends to seek tariff
l i beraliz ation i n t he nego tiations and t he reasons for s eeking s u c h
tariff reductions.”
After negotiations have begun, this provisio n requires t hat i f USTR i dentifies
any o ther “import-sensitive” agricultural p roducts for t ariff reduction, or if a country
involved i n t he negotiations requests a reduction i n t he tariff on any o ther “import-
sensitive” agr i cu l t u ral p roduct, the Trade Representative s hall notify t he four
committees of those p roducts and t he reasons for s eeking t ariff reductions.
R eflecting t he structure o f o ther free t rade agreem ent s , h em i s pheri c free t rade
in agricultural p roducts could o ccur b y about 2020 , assuming n egotiators reach
agreement o n an FTAA b y J anuary 2005. The agricultural component of the FTAA
nego t i at i n g p rocess, however, coul d b ecom e problematic once n egotiators begi n t o
apply negotiating param et ers and timetables to speci fi c c ommodities and food
products that each country historically has protect ed. S ome Latin American
countries, p articularly Braz il, seek increased access t o t he U.S . market for p roducts
that would compete directl y w i t h U.S. producers o f citrus, s ugar, and beef. U.S.
commodity groups and agribusiness s eek additional openings for their p roducts in the
growing Latin American market. They also s eek legal assurances that all countries
will abide by s anitary and phytosanitary rules with respect to agricultu ral imports.
Though t he United S tates will emphasize eliminating t ariffs and o ther barriers
to agricultural t rade, Braz i l and other countries have sign aled they w a nt the
nego tia t i n g a ge nda to also address t he issue o f domestic agricultural s upport (i.e.,
farm price and income support). They h ave s uggested linking their reduction i n t heir
high er tariffs to a concession by the United S tates o n t he domestic support i ssue. The

United S tates h as countered tha t t h i s i s s u e i s not one of the agreed-upon FTAA
objectives, and should i n s t e a d b e a ddressed j ointly by all FTAA countries in the
ongoing W TO agriculture negotiations. These differing vie w s over how this issue
should b e addressed i n t he nego tiations, and/ or whether a compromise emerges in the
nex t three weeks, will be a s ignificant p art o f t he mix influencing t he outcome of the
Miami FTAA M inisterial held November 17-21.
U.S. agricultural i nterests have had the opportunity through public comment to
present t heir views and concerns on the FTAA negotiations to USTR offici al s. Some
have participat ed in the private sect or m eetings scheduled alongside those for FTAA
trade ministers. The U.S. agricultural s ector, t hough, appears either lukewarm about
FTAA prospects o r opposed to this initiative. There i s a widely held view that U.S.
agri cul t u re ex pect s t o b enefi t m o re, o r w oul d h ave l ess t o l ose, from a com p rehensi v e
multilateral W TO agreem ent compared t o an FTAA agreem ent,
If an FTAA agreem ent i s reached t h at refl ect s t he obj ect i v es agreed t o by t rade
ministers in 1998, U.S. f a r m policym akers m ay have to contend with the
repercussions of opening the U.S. m arket t o import-sensitive farm p roducts. Though
fi nal agreem e n t and i m p l em ent at i o n o f an FTAA agreem ent w oul d b e m any years
off, this outcome could prompt i nteres t i n devel oping alternatives to the current sugar
program. Some may a l s o e x p lore whet her t here might be a n eed to develop
mechanisms to help other c o m modities and products that have traditionally not
received government support, such as vegetabl es, fruit, and o range j uice, to offset the
effect s of i ncreas ed import competition.