Order Code IB10077
Issue Brief for Congress
Received through the CRS Web
Agricultural Trade Issues in the 107th Congress
Updated June 24, 2002
Charles E. Hanrahan, Geoffrey S. Becker, and Remy Jurenas
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
U.S. Agricultural Exports
U.S. Agricultural Imports
Overview of Policy Debate
Fast Track or Trade Promotion Authority
Trade Agreements
Bilateral Trade Agreements
Chile
Singapore
Free Trade Area of the Americas (FTAA)
Agricultural Negotiations in the World Trade Organization (WTO)
Biotechnology and Agricultural Trade
China and U.S. Agriculture
Agricultural Export and Food Aid Programs
Omnibus Farm Bill
FY2003 Appropriation
Sanctions and Agriculture

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Agricultural Trade Issues in the 107th Congress
SUMMARY
The 107th Congress is considering trade
cember 2001 narrowly passed its version of
issues with implications for the U.S. agri-
TPA. Many, but not all, commodity and food
cultural sector. Trade in agricultural commod-
industry groups favor such action, arguing it
ities and food products affects farm income
would give U.S. trade negotiators greater
and rural employment, and it also generates
credibility and facilitate the passage of legisla-
economic activity beyond the farm gate. With
tion to implement future trade agreements.
agricultural export sales the equivalent of one-
These include negotiations, which Congress is
quarter of farm income, some policymakers
closely monitoring, on liberalizing trade in
view U.S. efforts to develop market opportu-
agriculture and other economic sectors in the
nities overseas as vital to the sector’s financial
World Trade Organization (WTO), in the
health. Decisions taken by the Bush Adminis-
hemispheric Free Trade Area of the Americas
tration, and actions taken by Congress, thus
(FTAA), and in the free trade agreements with
will affect the outlook for agricultural trade.
Chile and Singapore.
U.S. agricultural exports are forecast to
Following agreement on terms of
improve only slightly in FY2002. Agricul-
China’s accession to the WTO, Congress has
tural groups and their supporters in Congress
focused on ensuring that China adheres to its
believe that long-term prosperity depends
commitments to open its market to U.S. agri-
partly on U.S. trade policies that: (1) aggres-
cultural products. Members opposed to tight
sively reduce foreign-imposed barriers to U.S.
rules on food sales to Cuba (now permitted
farm products, (2) hold other countries ac-
only under narrow conditions) have intro-
countable for commitments they have already
duced bills to ease them. Farm bill conferees,
made in existing trade agreements, (3) resolve
however, rejected a Senate proposal to permit
festering disputes with major trading partners,
private financing of such sales. Other mea-
and (4) fully use U.S. Department of Agricul-
sures address concerns about the treatment of
ture (USDA) export and food aid programs.
genetically engineered crops and food prod-
Other groups have pressed for restrictions on
ucts in international trade.
agricultural imports.
On May 13, 2002, the President signed
The Senate passed legislation to grant the
into law P.L. 107-171 an omnibus farm bill
President fast track, or trade promotion au-
whose trade title amends and extends export
thority (TPA), to negotiate future trade agree-
and food aid programs through FY2007. The
ments in May 2002. The House in early De-
FY2003 appropriations process is now under-
way.

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MOST RECENT DEVELOPMENTS
The President signed into law the Farm Security and Rural Investment Act of 2002 (P.L.
107-171) on May 13, 2002. Title III of the Act amends and extends most agricultural export
and food aid programs through 2007.
The Senate, on May 23, 2002,passed omnibus trade legislation which provides for
expedited procedures known as fast track or trade promotion authority for congressional
consideration of trade agreements negotiated by the President. The House approved its fast-
track bill granting the President trade negotiating authority (H.R. 3005) on December 6,
2001. The bills contain agricultural trade negotiating objectives and mandates extensive
consultation with House and Senate Agriculture Committees during trade negotiations.
On February 4, 2002, the President delivered his FY2003 budget request to Congress.
For USDA’s international programs–export subsidies, market development programs, export
credit guarantees, and food aid--of the U.S. Department of Agriculture, the budget proposes
a program level of $6.4 billion.
BACKGROUND AND ANALYSIS
U.S. Agricultural Exports
Agricultural exports are important both to farmers and to the U.S. economy. For
example, the U.S. Department of Agriculture (USDA) estimates that the share of U.S.
production volume exported in FY2000 was 44% for wheat, 53% for rice, 20% for corn, 43%
for soybeans and products, and 45% for cotton. Measured by value, 18% of total U.S.
agricultural production was exported. Calculations indicate around 25% of gross farm income
comes from exports. According to USDA, each dollar received from agricultural exports in
1998 stimulated another $1.30 in supporting non-farm activities. Agricultural exports
generated an estimated 808,000 full-time civilian jobs, including 488,000 jobs in the non-farm
sector. U.S. agricultural trade has consistently registered a positive, though recently declining,
balance.

Nearly every state exports agricultural commodities, thus sharing in export-generated
employment, income, and rural development. In FY2000, the leading agricultural exporting
states were (in order) California, Iowa, Texas, Nebraska, Kansas, Illinois, Minnesota,
Washington, Indiana, and Arkansas. These 10 states accounted for 59% of the total value of
U.S. agricultural exports. In addition, Wisconsin, Florida, North Carolina, Ohio, South
Dakota, and Missouri each shipped over $1 billion worth of commodities.
After growing rapidly in the 1970s, U.S. agricultural exports reached a high of $43.8
billion in FY1981, but then declined by 40% to $26.3 billion by FY1986. By FY1996,
agricultural exports had recovered and reached a new peak of nearly $60 billion, but then
began a decline that dipped to $49 billion by FY1999. Main reasons for the decline were
continuing financial turmoil in East and Southeast Asian markets, and increased competition
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for corn, wheat, and soybeans in global markets. Exports began to recover, rising to $50.9
billion for FY2000, and an estimated $53 billion in FY2001. USDA forecasts FY2002 export
value at $53.5 billion.
The commodity composition of U.S. agricultural exports has changed over time. Since
FY1991, bulk commodities (grains, oilseeds, and cotton) have accounted for less than total
non-bulk exports (intermediate products such as wheat flour, feedstuffs, and vegetable oils
and consumer-ready products such as fruits, nuts, meats, and processed foods). In FY2001,
high value agricultural exports accounted for 65% of the value of total agricultural exports.
Many variables interact to determine the level of U.S. agricultural exports: income,
population growth, and tastes and preferences in foreign markets; U.S. and foreign production
and prices; and exchange rates. U.S. agricultural export and food aid programs, domestic
farm policies that affect output and price, and trade agreements with other countries also
influence the level of U.S. agricultural exports.
U.S. Agricultural Imports
The United States is also a major importer of agricultural commodities and food
products. USDA classifies these as either non-competitive or competitive imports. Non-
competitive products include primarily tropical products (coffee, cocoa, bananas, rubber, and
spices) that are not produced domestically. Imports that compete against domestic output
include red meats (primarily beef), fruits and juices, vegetables and preparations, wine and
beer, certain grains and feeds, certain oilseeds, sugar and related products, and dairy products.
USDA estimates the import share of all U.S. food consumption was 9.1% in 1999.
Agricultural imports have risen 72% over the last decade, from $22.7 billion in FY1991 to
$39 billion in FY2001. Factors contributing to this growth in import demand include the
extended U.S. economic expansion during this period, low commodity prices, the strong U.S.
dollar which made imports cheaper, and the effects of trade agreements. Non-competitive
imports (about $6.3 billion) accounted for 16% of all agricultural imports in FY2001. The
value of competitive imports was nearly $33 billion (84% of the total).
The U.S. average tariff on agricultural imports (12%) is much lower than the global
average tariff (62%) imposed on similar imports. However, the United States along with
other developed countries restricts the entry of “import-sensitive” products to protect certain
domestic producers. U.S. tariff-rate quotas allow zero or low duty access for specified
amounts of foreign beef, sugar, peanuts, and cotton, among other products. Imports above the
applicable quota may enter, but face prohibitively high tariffs. This usually makes such
imports uncompetitive in the U.S. market. Safeguards (involving the temporary use of higher
tariffs and/or quotas) allow producers of an affected commodity or product sector additional
time to adjust to increased import competition. In recent years, the United States has imposed
safeguards on imports of lamb meat and wheat gluten, both of which were successfully
challenged in WTO dispute settlement and were not renewed after 3 years.
Though a large share of agricultural imports compete against U.S. products, they do
nevertheless generate economic activity in the U.S. economy. These imports provide
additional income to, and increased employment at, businesses involved in food processing
and in providing transportation, trade, and related services.
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(For more information on both agricultural exports and imports, see U.S. Agricultural
Trade: Trends, Composition, Direction, and Policy, CRS Report 98-253.)
Overview of Policy Debate
Although farm groups and agribusiness recognize that many world economic, political,
and weather factors influence the level of U.S. agricultural exports, many believe that the
agricultural sector’s future prosperity also depends upon U.S. trade policies that: (1)
aggressively reduce foreign-imposed barriers to U.S. farm products, (2) hold other countries
accountable for commitments they have already made in existing trade agreements, (3) resolve
festering disputes with major trading partners, and (4) fully use U.S. Department of
Agriculture (USDA) export and food aid programs.
A few U.S. farm groups point out that, by maintaining barriers to U.S. imports and their
own high export subsidies and internal farm supports, not all countries have fully honored
existing trade agreements. In fact, some of these groups (particularly representing import-
sensitive commodities) have pressed for more restrictions on foreign farm and food imports.
Fast Track or Trade Promotion Authority
Fast track or trade promotion authority (TPA) refers to the special procedures Congress
has adopted in the past for considering legislation to implement trade agreements with foreign
countries. Under the fast track/TPA concept, the President consults regularly with Congress
both before and during negotiations. Once an implementing bill that reflects a trade
agreement’s provisions is submitted, the time for debate is limited, and only an up or down
vote on the bill, with no amendments, is permitted. Fast track authority expired in 1994, and
a series of efforts to revive it failed in the 105th Congress and were not vigorously pursued in
the 106th, in part because of opposition from those advocating the inclusion of protections for
labor and the environment in future trade agreements.
TPA proponents in Congress maintain that the authority is needed to strengthen the hand
of the Administration in negotiations to establish the Free Trade Area of the Americas
(FTAA) and in World Trade Organization (WTO) negotiations on agriculture and other
sectors in the comprehensive negotiating round, the Doha Development Agenda (DDA),
launched in Doha, Qatar in November 2001 (see below). TPA would also enhance U.S.
participation in negotiating a free trade agreement with Chile and other bilateral trading
partners, they say. Without TPA, they argue, U.S. negotiators will lack credibility with
negotiating partners, who will be reluctant to make agreements they think could be revised
by Congress. Other proponents maintain that the absence of presidential TPA gives trading
partners who want to resist trade liberalization a convenient excuse to delay negotiations.
Some opponents of fast track argue, however, that Congress should not give up its
constitutional power to amend legislation. Other opponents maintain that previous (and
proposed) trade agreements passed using TPA disadvantage U.S. agribusinesses and farmers.
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Much of the agricultural community has supported giving the President TPA on the
grounds that it facilitates negotiations to open foreign markets to U.S. agricultural products.
However, some agricultural groups argue that fast track resulted in trade agreements with
negative impacts for certain U.S. producers. For example, U.S. sugar, peanut, dairy, and some
wheat, fruit, and vegetable producers argue that imports under terms of both the Uruguay
Round Agreement on Agriculture (URAA) and North American Free Trade Agreement
(NAFTA) undermine significantly the domestic market for their products.
While the Administration and leading trade-minded lawmakers have made fast
track/TPA a top trade priority for the 107th Congress, the debate has been protracted and
contentious. On December 6, 2001, the House passed a TPA bill (H.R. 3005, the “Bipartisan
Trade Promotion Authority Act of 2001") largely along party lines by a vote of 215-214. The
Senate passed its version of TPA on May 23, 2002. The bill, H.R. 3009 as passed by the
Senate, incorporates not only most of the TPA provisions of H.R. 3005, but includes also
legislation to renew trade preferences to Andean countries, an extension of the Generalized
System of Preferences for products of developing countries, and Trade Adjustment Assistance
(TAA) for workers displaced by trade.
Agricultural groups successfully pressed for language in the TPA bills that recognizes
their industry’s “special status” and/or makes special concessions to them. Both H.R. 3005
and H.R. 3009 as passed by the Senate, for example, enumerate explicit negotiating objectives
for agriculture, They provide for extensive consultation between the Administration and
House and Senate Agriculture Committees, including special consultation procedures that
could affect tariff reduction commitments on some 200 “import sensitive” agricultural and
food commodities. Both bills also include the preservation of U.S. export credit and food aid
programs among negotiating objectives for agriculture. These provisions–special treatment
for import sensitive products and preservation of export and food aid programs–could make
negotiating new reduction commitments for export subsidies (a U.S. objective) more difficult,
although the USTR maintains otherwise.
Of interest to agricultural interest groups is an amendment to H.R. 3009 as passed by the
Senate, agreed by voice vote on May 14, 2002, which provides for the exclusion from fast-
track consideration of provisions in a trade agreement which modify or amend U.S. trade
remedy laws. USTR and the Secretary of Agriculture say they will recommend that the
President veto a TPA bill which contained the amendment. As there is nothing comparable
in the House version, the issue will be taken up in conference. Agricultural interests, who
have made extensive use of U.S. trade remedy statutes, are divided over inclusion of the
amendment in a final bill. Opponents argue that the provision is counterproductive to U.S.
negotiations to bring other countries' trade remedy laws up to U.S. standards. Supporters of
the amendment express fears that U.S. negotiators will make concessions that would weaken
U.S. trade remedy laws. (For more detail, see Trade Remedies and Agriculture, CRS Report
RL31296, February 22, 2002.)
Another contentious issue is the TAA legislation, incorporated into H.R. 3009 as passed
by the Senate, which goes far beyond TAA legislation passed earlier by the House and
includes, among other provisions, assistance for farmers adversely affected by imports.
Agricultural groups may petition the Secretary of Agriculture to certify them as eligible for
TAA. If the Secretary determines that imports "contributed importantly" to lower than average
prices for the affected commodity, producers could receive prescribed cash payments of up
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to $10,000 per year each, with total national payments capped at $90 million. This and other
issues related to TAA will be taken up in conference. (For more information, see Fast-Track
Trade Negotiating Authority in the CRS Electronic Trade Briefing Book, and Agriculture and
Fast Track Trade Legislation, CRS Report 97-817.)
Trade Agreements
Provisions affecting agricultural trade are found in bilateral trade agreements approved
to date by the 107th Congress and in both bilateral and regional agreements being negotiated.
Particular attention focuses on how U.S. negotiators will deal with agricultural trade issues
in negotiations for a U.S.-Chile free trade agreement and for a hemispheric-wide FTAA.
While some commodity groups welcome the market openings these agreements are expected
to provide, producers of import-sensitive commodities will carefully monitor and seek to
shape those provisions that affect them. These producers will be most concerned about what
negotiators include as rules of origin, safeguards against import surges, the transition periods
agreed upon for market access, and the terms under which sanitary and phytosanitary rules are
applied. In the short term, observers note that the pace of negotiations on current and
prospective trade agreements involves a balancing act between Administration efforts to
secure trade promotion authority and at the same time not alienate Members of Congress that
represent agricultural interests, particularly import-sensitive products.
Bilateral Trade Agreements
The Clinton Administration in 2000 concluded trade agreements with Jordan and
Vietnam. In 2001, the 107th Congress approved, and President Bush signed, measures to put
them into effect (P.L.107-43 – H.R. 2603 – for Jordan; P.L. 107- 52 – H.J.Res. 51 – for
Vietnam). Negotiations on free trade agreements (FTAs) continue with Singapore and Chile.
President Bush on January 16, 2002, announced the United States also will explore an FTA
with Central America in order to promote economic and social growth in the region. And on
April 23, 2002, the President announced that the United States will seek an FTA with
Morocco. Other countries mentioned by U.S. trade officials in recent months as FTA
candidates include Australia, Egypt, and South Africa and neighboring African nations. An
FTA proposed last year by Australia and New Zealand met with considerable opposition from
U.S. agricultural interests.
Chile. The pace of liberalizing agricultural trade between the United States and Chile
has proven to be a difficult issue in negotiating an FTA. The United States over the last
decade has recorded a growing agricultural trade deficit with this major trading partner in
Latin America. In 2001, U.S. agricultural exports to Chile totaled $100 million; leading
products sold were corn gluten meal, wine making ingredients, snack foods, planting seeds,
and pet foods. Chile’s exports of agricultural products to the U.S. market were much higher,
valued just over $1.0 billion. Sales of fresh fruit (primarily table grapes), wine, fruit juices,
and planting seeds accounted for 90% of this total.
U.S. negotiators are pressing for increased market access for commodities (wheat, wheat
flour, edible oils) now protected by Chile’s price-band system. Price bands serve to insulate
producers and processors when the world price for any commodity falls below a calculated
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reference price. Protection is provided the domestic sector by levying a variable charge on
the imported commodity, which when added to the lower world price, raises the importer’s
cost to the reference price target. The future of Chile’s price band system and its effect on the
negotiations is uncertain in view of a recent WTO dispute panel ruling that it violates WTO
trade rules. Chile is appealing the ruling.
Chile in turn is seeking reductions in U.S. tariffs on the major farm products shipped to
its market and in changes in how anti-dumping and countervailing rules are applied. Chile
has repeatedly expressed concerns about the financial impact invoking these rules has had on
Chilean producers of salmon, grapes, and raspberries. That is because agricultural exports –
representing one-third of Chile’s total exports to the U.S. market – are important to its
economy.
Detailed talks on eliminating tariffs on agricultural products (e.g., determining which
products fall in which tariff reduction category, and the timetables that apply to each) began
in mid-September 2001. Subsequent negotiating sessions have included discussions on which
products should be placed in which tariff reduction category, and explored the use of
transitional tariff-rate quotas for the more import-sensitive agricultural commodities.
Questions of coverage, product exclusions, and phase-out periods (particularly with sensitive
products) in tariff negotiations are still open. The United States is reportedly seeking a
“special agricultural safeguard” in order to “manage access” of Chilean fruit and vegetable
products to the U.S. market during the transition to a free trade area. Chile reportedly would
drop demands that the United States eliminate domestic agricultural support on the basis that
the issue will be taken up in WTO agriculture negotiations. If Chile loses its appeal of the
WTO price band decision and converts the price bands into tariffs or tariff rate quotas, the
United States will press for phased reductions in protection for import-sensitive Chilean
commodities such as wheat, wheat flour, sugar and vegetable oil.
Negotiations on Chile’s Sanitary and Phytosanitary (SPS) barriers have been proceeding
along a parallel track. With some U.S. exporters having faced sanitary and phytosanitary
obstacles in recent years in selling pork, beef, dairy, and poultry products and certain fruit to
the Chilean market, the United States is expected to press for language that ensures such
matters in the future are addressed using WTO rules and procedures. Negotiators from both
sides have stated that disagreements on the agreement’s prospective agricultural provisions
could be the most difficult to resolve, and acknowledge this likely will not occur until the last
minute.
Negotiators met April 9-12 in Santiago and discussed market access for agricultural and
industrial products, among other issues. Reportedly, progress was made in determining the
phase-in periods for tariff reductions, including possible timetables for reducing tariffs on the
most sensitive imports, including a number of agricultural products. Progress was also
reported following an April 3-4 meeting on sanitary and phytosanitary issues. Reportedly, the
United States and Chile would set up a framework within which safety certification of poultry,
meat, and dairy products would be addressed as well as conditions for marketing U.S. beef
in Chile. U.S. and Chilean trade officials met through May and early June on both FTA and
SPS issues. At meetings the week of June 10th officials agreed to postpone negotiations until
September. A Chilean spokesperson indicated the postponement would allow time for final
passage of TPA negotiating authority, although U.S. officials said there was no link to TPA.
Differing House and Senate versions of TPA (H.R. 3005 and H.R. 3009 as passed by the
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Senate) under which Congress would consider a U.S.-Chile FTA, are yet to be taken up in
conference. In the meantime, the United States and Chile will continue discussions on both
agricultural trade and SPS issues.
(For background, see The U.S.- Chile Free Trade Agreement in the CRS Electronic
Trade Briefing Book.)
Singapore. The United States runs an agricultural trade surplus with Singapore. U.S.
agricultural and food exports in 2001 totaled $228 million, compared to $45 million in
imports. Top agricultural exports were fruit and related products, vegetables and related
products, cooking oils, snack foods, and poultry meat. Purchases of cocoa paste and butter,
snack foods, rubber and related products, and spices from Singapore accounted for 57% of
agricultural imports. Being primarily urban, Singapore produces little of its own food.
Reflecting this, tariffs on imported foodstuffs are close to zero. Because this city state is a
major shipping hub, some U.S. commodity groups seek the inclusion of rules of origin in the
FTA to prohibit duty-free treatment of food products transhipped through Singapore from
neighboring agricultural producing countries in Southeast Asia. Negotiators held their eighth
round of talks the week of April 22 and reportedly have made progress on rules of origin, but
still are working on their market access offers. Negotiations are scheduled to continue in
London during June 20- July 3. A session involving U.S. Trade representative Zoellick and
Singapore Minister for trade George Yeo may take place in late summer. USTR has indicated
that negotiations should conclude before the end of the year. (For background, see
Singapore-U.S. Free Trade Agreement, CRS Report RS20755, or a summary similarly titled
in the CRS Electronic Trade Briefing Book.)
Free Trade Area of the Americas (FTAA)
President Bush has stated that he places a high priority on negotiating an agreement to
completely remove trade barriers within the Western Hemisphere. The FTAA is intended to
go beyond NAFTA to encompass all trade among all of the region’s countries, and eventually
supersede the panoply of current regional FTAs and those that are being negotiated. Crafting
the FTAA rules for liberalizing agricultural trade and then negotiating the fine details between
the region’s 34 countries by the target date of 2005 are expected to be difficult and
contentious. Some Latin American countries, particularly Brazil, are seeking increased access
to the U.S. market for competitive products such as beef, citrus, sugar, and vegetables. U.S.
commodity groups and agribusiness seek additional openings for their products in the rapidly
growing Latin American market as well as legal assurances that all countries will abide by
sanitary and phytosanitary rules with respect to agricultural imports. The Office of the U.S.
Trade Representative (USTR) on January 17, 2001, issued summaries of the U.S. positions
on the objectives and rules to be followed to negotiate FTAA’s agricultural provisions.
At the third Summit of the Americas in April 2001, hemispheric leaders, including
President Bush, assessed progress to date and ratified the dates for completing FTAA
negotiations and making the agreement effective. Leaders accepted May 15, 2002 as the
deadline for initiating product and sector-specific negotiations, and agreed to conclude all
FTAA negotiations by January 2005. Their goal is to have the final agreement take effect no
later than December 2005. Leaders committed also to make the trade negotiation process
more transparent and accessible. Toward this end, a draft “bracketed” FTAA text (a
document reflecting all countries’ positions in all negotiating areas) was released on July 3.
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The draft agriculture chapter contains proposals for accelerated tariff elimination on
agricultural products, special treatment of the agricultural sectors of the smaller economies,
disciplines on state trading enterprises to begin at the start of the tariff elimination process,
and disciplines for monitoring food aid. The draft includes areas of disagreement on defining
and eliminating agricultural export subsidies, and on the nature and scope of agricultural
safeguards to be permitted to protect against import surges. Provisions in both House and
Senate versions of trade promotion measure (H.R. 3005 and H.R. 3009 as passed by the
Senate) that address the concerns of import-sensitive U.S. agricultural producers (e.g., citrus
and sugar, among others) in future trade negotiations prompted Brazil’s President and the
country’s lawmakers in mid-December 2001 to object to these stipulations and urge they be
dropped. The U.S. farm bill (P.L. 107-171), which potentially will increase U.S. spending on
trade-distorting subsidies, has been identified by Brazil as an obstacle to negotiating an
FTAA. U.S. trade negotiators, however, argue that the farm bill provides that spending on
subsidies be kept within agreed multilateral limits. These officials also maintain that the
United States is committed to further reducing domestic support in WTO negotiations. The
pace and substance of how key agricultural trade issues (e.g., export subsidies and domestic
support) are handled in WTO agriculture negotiations will influence the way they are
addressed by FTAA negotiators.
Trade officials for countries in the hemisphere met in Panama during the week of May
13 in an effort to keep to the schedule adopted in Buenos Aires last year. While agreement
was reached on a schedule for the market access phase of FTAA negotiations, no agreement
was reached on the modalities (formulas or targets) for tariff reductions. According to the
schedule agreed upon, countries would make initial offers for tariff reductions between
December 15, 2002 and February 15, 2003, followed by market access requests between
February 16 and June 15, 2003. Revised offers would follow this initial “request-offer”
process.
Officials were unable to agree, however, on the basis for tariff reductions in agriculture
and other sectors. At issue is whether to base tariff reductions on the applied tariff rate used
by countries or on the most-favored-nation (MFN) rate which is bound in the WTO. The
choice is important because MFN rates are generally higher than applied rates. Thus cuts
based on MFN rates could result in little or no increase in market access. The United States,
Canada, Mexico, and Central American countries agreed to allow Andean and MERCOSUR
countries some flexibility in adjusting tariffs even after notifying base rates. Andean countries
are engaged in phasing in a common external tariff while MERCOSUR countries are
adjusting their common external tariff in response to financial problems in Argentina, among
other factors. The United States is insisting on reductions based on applied rates. Opposed
to that position are the CARICOM countries which held out for basing reductions on MFN
rates.1 The issue will be on the agenda of the August meeting of trade officials in the
Dominican Republic and a decision on base tariff rates could come at the meeting of FTAA
trade ministers in October in Quito, Ecuador. Final stages of the FTAA negotiations, which
will be co-chaired by Brazil and the United States, will take place from November 2002
through December 2004. (For more information, see Agricultural Trade in the Free Trade
1 The Caribbean Community (CARICOM, is composed of Antigua, Barbados, Belize, Dominica,
Grenada, Guyana, Jamaica, Monserrat, St. Kitts-Nevis-Anguilla, St. Lucia, ST. Vincent, and
Trinidad and Tobago.
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Area of the Americas, CRS Report RL30935; and A Free Trade Area of the Americas in the
CRS Electronic Trade Briefing Book).
Agricultural Negotiations in the World Trade Organization
(WTO)
At the World Trade Organization (WTO) Fourth Ministerial Conference in Doha, Qatar,
November 9-14, 2001, trade ministers agreed on a declaration to begin a new round of
multilateral trade negotiations (MTNs), including negotiations on agriculture. This new round,
because of its emphasis on integrating developing countries into the world trading system, will
be called the Doha Development Agenda (DDA). The Doha Ministerial Declaration gives
new impetus to sectoral negotiations on agriculture that have been underway in the WTO for
some time. These negotiations are part of the so-called WTO’s “built-in agenda” and are
intended to continue the process of “substantial progressive reductions in support and
protection” of agriculture (Article 20 of the 1994 WTO Uruguay Round Agreement on
Agriculture (URAA)) begun in 1986. While the URAA established new and strengthened
rules for the conduct of agricultural trade, the new round will focus on measures to expand
market access for agricultural products and further reduce agricultural export subsidies and
trade-distorting domestic support.
For agriculture, the Doha Ministerial Declaration states that “building on the work
carried out to date (in the sectoral negotiations)” and “without prejudging the outcome of the
negotiations, we commit ourselves to comprehensive negotiations aimed at: substantial
improvements in market access; reductions of, with a view to phasing out, all forms of export
subsidies; and substantial reductions in trade-distorting domestic support.” The Declaration
also provides that “special and differential treatment for developing countries shall be an
integral part of all elements of the negotiations.” The Declaration takes note of “non-trade
concerns reflected in negotiating proposals of Members” and confirms that “non-trade
concerns (discussed below) will be taken into account” in the negotiations.
Although at Doha trade ministers reached agreement on a mandate for agriculture
negotiations, there remain the difficult tasks of deciding on “modalities” (e.g., formulas for
reducing tariffs or timetables for reducing export subsidies) for achieving the mandated
objectives and of developing individual country schedules, or lists, of commitments. Member
countries will differ in their choice of modalities. For example, some will want to reduce high
tariffs more rapidly than lower tariffs, while others will want to protect “sensitive” products
by slowing the pace of tariff reduction. Similarly, some will want rapid reductions in export
or domestic subsidies while others will want longer timetables for reductions. The WTO
Agriculture Committee has set out a work program which calls for establishing negotiating
modalities for achieving new reduction commitments over the period March 26, 2002 through
March 31, 2003. Modalities for reducing or eliminating export subsidies were discussed in
WTO negotiating sessions in June. Final agreement on export subsidies is not expected until
the March 2003 deadline. Agreement on export subsidies will likely come as part of a
package approach also consisting of reduction formulas for market access and domestic
support reduction The deadline for concluding the negotiations in the DDA, including those
on agriculture, is January 1, 2005.
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The United States, the Cairns Group of agricultural exporting countries,2 the European
Union (EU), Japan, and several developing countries submitted negotiating proposals during
the first phase. The U.S. proposal calls for the elimination of agricultural export subsidies by
a fixed date; substantial reductions in tariffs and increases in tariff-rate quotas on agricultural
imports; disciplines on state trading enterprises; and reductions in amber box spending (trade
distorting domestic support) based on the same fixed percentage of each country’s total
agricultural production value – with the objective of eventually making all countries’ domestic
support levels comparable in relative terms. The Cairns Group also calls for deep cuts in
domestic support and the elimination of export subsidies. The EU, Japan, and Korea place
greater emphasis on so-called non-trade concerns like protecting the environment and rural
development. The EU has conditioned its support for further export subsidy reduction on
including export credits and large U.S. food aid programs on the negotiating agenda.
Developing countries that are not members of the Cairns Group call for rapid dismantling of
trade barriers of developed countries coupled with exemptions for domestic support deemed
essential for economic development.
Most U.S. agricultural interest groups are pleased that agriculture has been folded into
a more comprehensive multilateral round of trade negotiations. These groups believe that
trade-offs possible in a more comprehensive negotiation would result in improved market
prospects for U.S. agricultural exports. Others, such as winter vegetable producers or wheat
farmers in states that border Canada, who feel disadvantaged by previous trade agreements
(i.e., NAFTA) are not enthusiastic about U.S. participation in a new round.
While the Administration claimed substantial success in terms of the negotiating
mandate for agriculture in the new round, the President on May 13, 2002, signed into law a
farm bill (P.L. 107-171) to replace the 1996 Federal Agricultural Improvement and Reform,
or FAIR, Act) that, many critics say, could raise trade-distorting domestic support above U.S.
commitments to reduce such spending and also undermine the U.S. position in the new round
of multilateral trade negotiations. However, the conference report on the farm bill stipulates
that the Secretary shall, to the maximum extent possible, make adjustments in domestic
support to ensure that it does not exceed levels allowable under the Uruguay Round
Agreement on Agriculture. Moreover, U.S. trade officials insist that the United States has not
wavered from its negotiating objective of securing substantial reductions in domestic
subsidies that distort trade. (For more information, see Agriculture in WTO Negotiations ,
CRS Report RS21085, or a summary so titled in the CRS Electronic Trade Briefing Book;
Farm Support Programs and World Trade Commitments, CRS Report RL30612 and
Agricultural Export Subsidies, Export Credits, and the World Trade Organization, CRS
Report RS20858.)
2 The 18 members of the Cairns group are: Argentina, Australia, Bolivia, Brazil, Canada, Chile,
Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines,
South Africa, Thailand and Uruguay. Negotiating proposals submitted by individual countries, and
background papers on negotiating issues prepared by the WTO Secretariat, can be found at
[http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm].
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Biotechnology and Agricultural Trade
Conflict between the United States and its trading partners over regulations for
genetically engineered (GE) crops and food products that contain them pose a potential threat
to, and in some instances have already disrupted, U.S. agricultural trade. Underlying the
conflicts are pronounced differences between the United States and several important trading
partners in consumer attitudes about GE products and their potential health and environmental
effects.
Consumer acceptance of GE crops and foods at home and abroad is critical to U.S.
producers, processors, and exporters. U.S. farmers have adopted GE crops because they offer
prospects of reducing input costs or making planting more flexible. Aside from their
agronomic benefits, supporters of GE crops maintain also that the technology holds promise
for enhancing agricultural productivity and improved nutrition in developing countries. For
the most part, U.S. consumers have not questioned the health or safety of GE foods. Concerns
about the environmental consequences of planting GE varieties are more widely held. In
contrast, in the EU, Japan, South Korea, and elsewhere, consumers, environmentalists, and
some scientists maintain that the long-term effects of GE foods on health and the environment
are unknown and not scientifically established. The EU, in particular, insists that precaution
should be used in approving and regulating GE foods.
The U.S. regulatory framework for GE foods facilitates their introduction into U.S.
agriculture and food processing. The guiding principal is that GE foods are “substantially
equivalent” to conventional foods; therefore, existing regulations for approving foods are
appropriate and adequate. Labeling with respect to GE content is not required in the United
States, except where there is a significant difference between the conventional and the GE
food product (for example, the presence of an allergen). The EU, Japan, South Korea, and
China–all major U.S. export markets--either have or are establishing mandatory labeling
requirements for products containing GE ingredients. The EU has developed a new approval
process for GE crops, as well as EU-wide legislation for tracing GE crops through the
marketing chain and for labeling products that contain GE ingredients (including products
where no trace of modified DNA is present). U.S. trade policy officials have criticized the
new rules as unnecessarily onerous, while producers and marketers of GE products have
expressed concern about the additional regulatory burden and cost that the new biotech rules
would impose. The new legislation still must be approved by the European Parliament as well
as individual EU member governments before it can take effect in 2003. The possibility of
a U.S. challenge to EU regulations in WTO dispute settlement has been raised by both
industry and government spokespersons.
Both the food industry and government regulators are likely to be involved in trying to
influence as well as meet the diverse labeling regulations in overseas markets. U.S. industry
is assessing the costs and benefits of separating GE from non-GE crops and of preserving crop
identity in the marketing chain. U.S. officials are considering changes in the regulatory
framework to permit and facilitate voluntary labeling and/or enhance systems for certifying
the statements about the GE content of foods.
Biotechnology issues are receiving attention in the 107th Congress. Biotechnology
provisions in the 2002 farm bill (P.L. 107-171) include: a biotechnology and agricultural trade
program, aimed at barriers to the export of U.S. products produced through biotechnology
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(Section 3204); competitive grants for biotechnology risk assessment research (Section 7210);
agricultural biotechnology research and development for developing countries (Section 7505);
and a program of public education on the use of biotechnology in producing food for human
consumption. (Section 10802). A bill introduced in the 107th Congress calls for mandatory
labeling of GE foods (H.R. 4814). Other bills (H.R. 4812, H.R. 4813, and H.R. 4816) deal
respectively with legal issues raised by cross-pollination with GE plants, a study of the safety
fo GE foods, and liability for injury caused by GE organisms. (For more information, see
Food Biotechnology in the United States: Science, Regulation, and Issues, CRS Report
RL30198; and StarLink Corn Controversy: Background, CRS Report RS20732; U.S.
European Agricultural Trade: Food Safety and Biotechnology Issues, CRS Report 98-861;
and Biotechnology and Agricultural Trade in the CRS Electronic Trade Briefing Book. Also
see: General Accounting Office, Concerns Over Biotechnology Challenge U.S. Agricultural
Exports, GAO-01-727, June 2001.)
China and U.S. Agriculture
Since China’s formal admission to the WTO in December 2001, Congress has been
monitoring its compliance with the terms of its WTO agreement. By early December 2001,
the Administration already was expressing concern that China was not adhering to its
commitments on tariff-rate quotas (TRQs) for agricultural imports. China repeatedly delayed
announcement of regulations for the TRQs, and when announced the TRQs did not appear to
provide the market access that the United States and other exporting countries expected under
China’s WTO agreement. There is concern also about new Chinese rules for the approval
and labeling of genetically modified farm products that were set to take effect in March, but
have now been delayed until December. In the interim, however, U.S. producers contend that
conflicting rules and management difficulties may impede U.S. soybean exports while China
works out the details of its regulations. GMO regulations could impact on the nearly $1
billion of U.S. soybean exports to China. In addition, U.S. trade officials in Beijing, have said
they think China may be subsidizing corn exports in violation of its commitment to end such
subsidies.
The stakes are high due to the size of China’s market for U.S. agricultural products
generally and future prospects for growth in demand. U.S. agricultural exports to China were
valued at $1.884 billion in FY2001, making it the United States' seventh largest market for
farm products. An additional $1.253 billion of U.S. farm products were shipped to Hong
Kong in 2001, many of which are destined for mainland China. U.S. agricultural exports to
China are forecast to be $2.3 billion in FY2002, approaching the $2.4 billion reached in 1995.
If long-run growth is strong, as many economists expect, China's 1.3 billion population, and
its growing middle class, suggest an even greater potential as a market for U.S. agricultural
products. (For more information, see Agriculture and China’s Accession to the World Trade
Organization, CRS Report RS20169; and China's Accession to the WTO in the CRS
Electronic Trade Briefing Book.)
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Agricultural Export and Food Aid Programs
Major agricultural export and food aid programs, which now operate under the authority
of the Farm Security and Rural investment Act of 2002 (P.L. 107-171), are: (1) the Export
Enhancement Program (EEP) and Dairy Export Incentive Program (DEIP), the only current
direct price export subsidy programs; (2) food aid programs (Section 416 food donations,
Food for Progress and P.L. 480 – Food for Peace); (3) export credit and credit guarantee
programs (GSM-102 and GSM-103); and (4) market promotion programs ( Market Access
Program (MAP), and the Foreign Market Development Cooperator Program (FMD). These
programs are shaped and funded both by authorizing legislation (primarily omnibus farm
bills) and by annual appropriations.
Omnibus Farm Bill.
The new farm bill amends and extends most agricultural export
and food aid programs through 2007. The bill reauthorizes both EEP and DEIP through 2007.
Funding for MAP, currently at $90 million, will be increased to $100 million in FY2002,
$110 million in FY2003, $125 million in 2004, $140 million in FY 2005, and $200 million
for FYs 2006-2007. For USDA’s other export market development program, FMDP, funding
will be increased from $27.5 million per year currently to $34.5 million per year. The export
credit guarantee programs are reauthorized at current levels ($5.5 billion per year).
P.L. 107-171 reauthorizes the Food for Peace or P.L. 480 food aid program through
FY2007. It eliminates the annual $1 billion cap on Title II spending, increases the minimum
level of commodities to be donated under Title II to 2.5 million metric tons per year, and
funds transportation, storage and handling charges in the distribution of Title II commodities
at between 5% and 10% of annual Title II funding. The farm bill conference report makes a
number of changes intended to streamline program administration of P.L. 480. Reauthorized
also are the Bill Emerson Humanitarian Trust, a reserve of commodities and funds, that can
be used under certain circumstances in P.L. 480 programs, and the Farmer-to-Farmer Program
of technical assistance financed by P.L. 480 appropriations.
Also the new farm bill reauthorizes the Food for Progress program through FY2007, lifts
funding caps on administrative costs and costs related to commodity transportation, and sets
a minimum tonnage of 400,000 metric tons per year. The farm bill authorizes the President
to establish a “McGovern-Dole International Food for Education and Child Nutrition
Program” with funding mandated at $100 million in FY2003. Thereafter, the funding level
for this program would be subject to annual appropriations.

FY2003 Appropriation. Congress is now considering the Bush Administration's
FY2003 budget request for USDA. For USDA's international activities, the Administration
estimates FY2003 budget outlays of $2.31 billion to support a program level of $6.45 billion.
Foreign food aid programs would decline under the FY2003 proposal, to $1.35 billion
compared with an estimated $1.61 billion in FY2002, which food aid advocates argue would
sharply reduce tonnage. The Administration has recommended curtailing the use of Section
416 as a vehicle for food aid, which it rationalized through its recent review of food aid -- a
review that also recommended (and is in the budget proposal) that all programs now run
through private voluntary organizations, cooperatives, and the World Food Program be placed
at AID, with USDA food aid activities confined to government-to-government programs.
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(For more information on both farm bill authorization and budget issues , see
Agricultural Export and Food Aid Programs, CRS Issue Brief IB98006; Agricultural Export
Programs: The Dairy Export Incentive Program, CRS Report RS20402; Agricultural Export
Programs: The Export Enhancement Program, CRS Report RS20399; Agricultural Export
Programs: The Market Access Program and Foreign Market Development Cooperator
Program, CRS Report RS20415; and Foreign Food Aid Programs: Background and Selected
Issues, CRS Report RS20520; and The Bill Emerson Humanitarian Trust: Background and
Current Issues, CRS Report RS21234.)
Sanctions and Agriculture
The 106th Congress codified the lifting of U.S. sanctions on commercial sales of food,
agricultural commodities, and medical products to Iran, Libya, North Korea, and Sudan, and
extended this policy to apply to Cuba (Title IX of H.R. 5426, as enacted by P.L. 106-387; the
Trade Sanctions Reform and Export Enhancement Act of 2000, or TSRA). Enacted
provisions place financing and export licensing conditions on sales to these countries; those
applicable to Cuba are permanent and more restrictive than for the other countries. The
inclusion of Cuba in this exemption to U.S. unilateral sanctions policy generated the most
controversy. Proponents argued that the embargo on sales to Cuba (a sizeable nearby market)
harmed the U.S. agricultural sector, and that opening up limited trade would be one way to
pursue a “constructive engagement” policy. Opponents countered that such an exemption
would undercut current U.S. policy designed to keep maximum pressure on the Castro
government until political and economic reforms are attained. In conference action on the
TSRA, opponents succeeded in inserting the restrictive provisions that apply to Cuba.

Under the new policy, Cuba since late 2001 has made cash purchases of about $90
million of U.S. wheat, corn, rice, poultry and other commodities from U.S. agribusinesses
in order to quickly rebuild food reserves. This decision reflected a reversal in Cuban policy,
prompted by losses of stocks caused by Hurricane Michelle that struck the island a few weeks
earlier. Following TSRA's enactment in October 2000, Cuba's leaders had signaled there
would be no purchases of permitted U.S. products because of the statutory provisions that
prohibited the use of private financing to make agricultural and medical product sales and
restricted tourist travel to Cuba. They strongly criticized these prohibitions as "unworkable"
and "insulting," viewing them as a tightening rather than an easing of the embargo. Some
observers, though, viewed such talk as political rhetoric and speculated that pragmatists in the
Cuban government seeking to save scarce resources might in time influence a softening in its
leadership's stance.
Members of Congress opposed to TSRA’s prohibitions, particularly with respect to
Cuba, have introduced measures to repeal these provisions (H.R. 173; H.R. 174; H.R. 797/S.
402; H.R. 798/S. 400; H.R. 2138/S. 1017; S. 171; and S. 239). Some of these bills include
provisions to amend TSRA as part of broader proposals to modify or end the U.S. embargo
on Cuba. Reflecting in part these views, the Senate farm bill would have repealed TSRA's
prohibition on the private U.S. financing of agricultural sales to Cuba (Section 335 of S.
1731). The Bush Administration strongly opposed this provision. During debate on this bill
in December 2001, the Senate tabled (effectively rejected) on a 61-33 vote an amendment that
would have conditioned U.S. sales of agricultural products to Cuba upon a Presidential
certification that Cuba was not involved in supporting international terrorism. The farm bill
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conference report, however, dropped the Senate provision striking TSRA’s prohibition of
private financing of agricultural sales to Cuba. However, some in Congress have indicated
they will offer this amendment to permit private financing of U.S. farm sales to Cuba in
FY2003 appropriations legislation.
Senator Dorgan on May 17, 2002, offered an amendment (identical to the farm bill
provision) to the package of trade legislation being debated by the Senate (S.Amdt. 3439 to
the Baucus/Grassley substitute (S.Amdt. 3401) to H.R. 3009). On May 21, he withdrew it
from further consideration, stating he intends to offer it again, possibly to an appropriations
bill this summer. President Bush on May 20 in a major Cuba policy speech reiterated his
opposition, stating such a change "would just be a foreign aid program in disguise, which
would benefit the current regime."
Separately, in reauthorizing export control authority (S. 149), the Senate on September
6, 2001, passed an amendment that effectively prohibits their use to limit food sales for
national security and foreign policy reasons. Related provisions require that the exercise of
any export control authority on food conform to TSRA provisions. (For more information, see
Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and
Implementation, CRS Issue Brief IB10061; and Cuba Sanctions in the CRS Electronic Trade
Briefing Book.)
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