Order Code IB10077
Issue Brief for Congress
Received through the CRS Web
Agricultural Trade Issues
in the 107th Congress
Updated September 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
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 has been considering
favor TPA, arguing it gives U.S. trade negoti-
a variety of trade issues with implications for
ators greater credibility and facilitates the
the U.S. agricultural sector. Trade in agricul-
passage of legislation to implement future
tural commodities and food products affects
trade agreements.
farm income and rural employment, and it
also generates economic activity beyond the
They include World Trade Organization
farm gate. With agricultural export sales the
(WTO) negotiations, which Congress is
equivalent of about 25% of gross farm
closely monitoring, to further liberalize trade
income, some policymakers view U.S. efforts
in agriculture and other economic sectors; the
to develop market opportunities overseas as
hemispheric Free Trade Area of the
vital to the sector’s financial health. Deci-
Americas (FTAA); and bilateral agreements
sions by the Bush Administration, and actions
with Chile and Singapore, among others.
taken by Congress, thus could affect the out-
look for agricultural trade.
Following agreement on the terms of
China’s accession to the WTO, Congress has
U.S. agricultural exports are forecast to
focused on ensuring that China adheres to its
improve through FY2003. Agricultural
commitments to open markets to U.S. agricul-
groups and their supporters in Congress be-
tural products. Despite such commitments,
lieve that the pace of improvements depends
U.S. agricultural exporters continue to en-
partly on U.S. trade policies that: (1) aggres-
counter major obstacles to Chinese markets.
sively reduce foreign-imposed barriers to U.S.
farm products, (2) hold other countries ac-
Lawmakers have introduced bills to ease
countable for commitments they have already
the tight rules on permitted food sales to
made in existing trade agreements, (3) resolve
Cuba. Farm bill conferees rejected a Senate
festering disputes with major trading partners,
plan to permit private financing of such sales,
and (4) fully use U.S. Department of Agricul-
but the issue has arisen in other legislation.
ture (USDA) export and food aid programs.
On the other hand, some continue to press for
On May 13, 2002, the President signed
restrictions on various agricultural imports , to
into law an omnibus farm bill (P.L. 107-171)
protect U.S. producers from what they view as
with a trade title amending and extending
unfair foreign competition.
export and food aid programs through
FY2007, and containing more stringent coun-
On August 6, 2002, the President signed
try of origin labeling requirements for food
into law fast track, or trade promotion au-
imports.
thority (TPA), to negotiate future trade agree-
ments, capping a lengthy and often conten-
The FY2003 appropriations process, now
tious debate in the 107th Congress. The House
underway, will determine annual funding for
and Senate cleared the conference report on
USDA trade and food aid programs. Other
this broad trade measure that included TPA
measures address concerns about the treatment
just prior to their August recess. Many, but
of genetically engineered crops and food
not all, commodity and food industry groups
products in international trade.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
As of late September 2002, the full House and Senate had not considered their FY2003
agriculture appropriations measures (H.R. 5263 and S. 2801, respectively) which were
reported in July by their respective Appropriations Committees. These bills contain funding
levels for the upcoming year for several international agricultural programs – export
subsidies, market development programs, export credit guarantees, and food aid.
The President, on August 6, 2002, signed into law (P.L. 107-210) a wide-ranging trade
bill (H.R. 3009) that includes his long-sought trade promotion (fast track) authority to
negotiate and seek expedited approval of international trade agreements. The House and
Senate cleared a conference version of the legislation just prior to their August recess,
capping a long and contentious debate. The measure contains agricultural trade negotiating
objectives and mandates extensive consultation with the House and Senate Agriculture
Committees during trade negotiations.
In the trade negotiating arena, the Bush Administration in late July unveiled the latest
iteration of its proposal for reforming global agricultural trade rules under the World Trade
Organization (WTO), including steep cuts in domestic farm and export subsidies and
reductions in import barriers. Separately, some officials have joined U.S. exporters in
expressing frustration over whether China is meeting its WTO commitments to open its
agricultural markets now that it is a member.
BACKGROUND AND ANALYSIS
U.S. Agricultural Exports
Agricultural exports are important both to farmers and to the U.S. economy. 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 FY2001, the leading agricultural exporting
states were (in order) California, Texas, Iowa, Kansas, Illinois, Nebraska, Minnesota,
Washington, Indiana, and North Carolina. These 10 states accounted for nearly 60% of the
total value of U.S. agricultural exports.
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. A decade later,
agricultural exports had recovered and reached a new peak of nearly $60 billion (FY1996),
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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 for corn, wheat, and soybeans in global markets. Exports since then have
recovered, rising to $52.7 billion for FY2001, and an estimated $53.5 billion in FY2002.
USDA currently forecasts FY2003 export value at $57.5 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 commodity 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” agricultural 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, cotton, tobacco, and dairy 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
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additional income to, and increased employment at, businesses involved in food processing
and in providing transportation, trade, and related services.
(For more information on both agricultural exports and imports, see CRS Report 98-253,
U.S. Agricultural Trade: Trends, Composition, Direction, and Policy.)
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 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
into the United States.
Fast Track or Trade Promotion Authority
Congress in August 2002 restored the President’s so-called fast track or trade promotion
authority (TPA). TPA refers to the special procedures for considering legislation to
implement trade agreements with foreign countries. Under the fast track/TPA authority, the
President is required to consult 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 inclusion of more protections for labor and the environment in future
trade agreements.
TPA proponents in Congress have maintained that the authority is needed to strengthen
the hand of the Administration in negotiations to establish the hemispheric Free Trade Area
of the Americas (FTAA) and in World Trade Organization (WTO) negotiations on agriculture
and other sectors in the comprehensive multilateral negotiating round – the Doha
Development Agenda (DDA) launched in Doha, Qatar in November 2001 (see below). TPA
also will enhance U.S. participation in negotiating free trade agreements with Chile and other
bilateral trading partners, they say. Proponents add that foreign officials now will be more
willing to conclude agreements with U.S. negotiators if they believe it will be harder for
Congress to force subsequent rewrites after difficult compromises are reached.
Some opponents of fast track argued, however, that Congress should not give up its
constitutional power to amend legislation. Other opponents maintain that previous trade
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agreements that were endorsed under TPA have resulted in few gains and sometimes negative
benefits for U.S. agribusinesses and farmers. 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) have significantly undermined the domestic market for their products.
Critics have also often complained that some major foreign trading partners have not fully met
their obligations under these agreements.
Still, much of the agricultural community supported giving the President TPA on the
grounds it does facilitate negotiations to open foreign markets to U.S. agricultural products.
The House on July 27 and the Senate on August 1, 2002, cleared TPA as part of the
conference report (H.Rept. 107-624) on the wide ranging trade bill (H.R. 3009). This bill also
renews the Andean Trade Preference Act, expands trade adjustment assistance (TAA)
legislation for workers and firms, extends the Generalized System of Preferences for products
of developing countries, among other matters. The President signed the measure into law
(P.L. 107-210) on August 6, 2002, capping a protracted and often contentious debate.
Earlier, on December 6, 2001, the House narrowly passed, largely along party lines, a
TPA bill (H.R. 3005) that had been approved earlier by its Ways and Means Committee. The
Senate Finance Committee cleared its version of H.R. 3005 on December 18, 2001. This
version was folded, as Title XXI, into a much broader trade measure [an expanded version
of the Andean Trade Preference Act]. The Senate cleared this measure, with more bipartisan
support, on May 23, 2002.
Agricultural groups successfully pressed for language in the TPA section of H.R. 3009
that recognizes their industry’s “special status” and/or makes special concessions to them.
H.R. 3009 enumerates explicit negotiating objectives for agriculture, and provides for
extensive consultation between the Administration and House and Senate Agriculture
Committees. These include special consultation procedures that could affect U.S. tariff
reduction positions taken on some 200 import sensitive agricultural and food commodities.
The enacted TPA also includes 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 Office of the U.S. Trade Representative (USTR) maintains otherwise.
Another provision in the TAA section of H.R. 3009 as signed authorizes $90 million
annually (FY2003-07) in funds to assist 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 to $10,000
per year each, although their benefits could be reduced proportionately to stay within the $90
million authorization. (For more information, see Fast-Track Trade Negotiating Authority in
the CRS Electronic Trade Briefing Book; CRS Report 97-817, Agriculture and Fast Track
Trade Legislation; and RS 21182, Trade Adjustment Assistance for Farmers.)
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Trade Agreements
Provisions affecting agricultural trade are found in bilateral trade agreements approved
to date by the 107th Congress and will be developed in other bilateral and regional agreements
being negotiated. Particular attention focuses on how U.S. negotiators will deal with
agricultural trade issues in negotiating a U.S.-Chile free trade agreement and the 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 (SPS) rules are applied.
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.
Now that TPA is law, President Bush and USTR Ambassador Zoellick have signaled their
intent to conclude agreements with Chile and Singapore by year end and to initiate
negotiations with other bilateral trading partners. To assist USTR in these efforts, the
International Trade Commission on September 19, 2002, provided confidential reports that
analyzed the probable economic effects on the U.S. economy of eliminating U.S. tariffs on
certain agricultural products imported from Chile and Singapore.
Earlier, President Bush on January 16, 2002, announced that the United States will
explore an FTA with five Central American countries in order to promote economic and
social growth in the region. USTR officials have indicated that negotiations with El Salvador,
Guatemala, Honduras, Costa Rica, and Nicaragua will be launched early in 2003. On April
23, 2002, the President announced that the United States will seek an FTA with Morocco.
U.S. trade officials and some Members of Congress have also mentioned Australia, Korea,
New Zealand, the Southern African Customs Union (which includes South Africa), and
Taiwan as other FTA candidates. An FTA proposed last year by Australia has met with
considerable opposition from some U.S. agricultural interests. They argue that such an
agreement would not benefit farmers, since some longstanding SPS disputes with Australia
have never been resolved, and state that the Administration should concentrate its efforts
instead on working toward agricultural trade liberalization in the WTO talks (see below).
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 billion. Sales of fresh fruit (primarily table grapes), wine, fruit juices, and
planting seeds accounted for 90% of this total.
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Chile views the agriculture provisions of a prospective FTA as important to its economic
growth, because agricultural exports represent one-third of Chile’s total exports to the U.S.
market. Its negotiators are seeking reductions in U.S. tariffs on the major farm products it
ships to the United States and changes in how U.S. 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.
U.S. negotiators are pressing for increased market access for commodities (wheat, wheat
flour, edible vegetable oils, and sugar) 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 reference price (e.g., a price target comparable to a commodity
support level). 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. How this issued is handled in the U.S.-Chile FTA could be
influenced by a May 2002 WTO ruling and recent appeals decision that found Chile’s price
band system largely violates multilateral trading rules for agriculture. With Chile directed on
September 23, 2002, by WTO’s Appellate Body to modify these price bands, how Chile in
practice complies is likely to be on the negotiators’ agenda as they try to conclude an
agreement. If Chile converts the price bands into tariffs or tariff-rate quotas, the United States
will press for phased reductions in protection accorded such import-sensitive Chilean
commodities as wheat, wheat flour, sugar and vegetable oil.
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. U.S.
producers of apricots, mushrooms, cling peaches, fruit juices, and other horticultural products
have requested exemptions or long tariff reduction periods in the final agreement. Questions
of coverage, product exclusions, and phase-out periods (particularly with sensitive products)
in tariff negotiations are still open. The United States reportedly is seeking a 15-year
transition period for the most sensitive agricultural products; Chile advocates a maximum 12-
year period for such items. The United States is also 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.
Negotiations on Chile’s SPS barriers have been proceeding along a parallel track. With
some U.S. exporters having faced SPS obstacles in recent years in selling pork, beef, dairy,
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, 2002, 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
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reducing tariffs on the most sensitive imports, including a number of agricultural products.
Progress was also reported following an April 3-4 meeting on SPS issues. Press accounts
report that 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 the conditions
for marketing U.S. beef in Chile. U.S. and Chilean trade officials met through May and early
June on both market access and SPS issues. With TPA passage, both governments have
agreed upon a negotiating schedule with the objective of finalizing an agreement by the end
of the year. The 12th negotiating round will occur in Atlanta from September 26 to October
2, with followup sessions planned for early November and again in early December. (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 reportedly have
made progress on rules of origin and other trade rules, but still are working on their market
access offers. The next (10th) negotiating round is scheduled for September 30 - October 4
in London. USTR’s Zoellick has indicated that negotiations should conclude by the end of
the year. (For background, see CRS Report RS20755, Singapore-U.S. Free Trade Agreement,
or a summary similarly titled in the CRS Electronic Trade Briefing Book.)
Free Trade Area of the Americas (FTAA)
President Bush has stated 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 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
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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,
2001. 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.
The prospect that the TPA measure will 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 retention of the special consultation
procedures and requirements on such products in the final enacted TPA are viewed as too
restrictive, and could hinder ongoing negotiations, according to statements made by Brazil’s
Foreign Minister in early August 2002. Brazil has also identified the U.S. farm bill (P.L. 107-
171), which potentially will increase U.S. spending on trade-distorting subsidies, as an
obstacle to negotiating an FTAA. U.S. trade negotiators, however, argue that the farm bill
provides that spending on farm subsidies will be kept within earlier agreed-upon limits.
These officials also maintain that the United States is committed to further reducing domestic
support in multilateral 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 FTAA negotiators address them.
Trade officials for countries in the hemisphere met in Panama in mid-May 2002 in an
effort to keep to the schedule ratified in Quebec City. While agreement was reached on a
schedule for the market access phase of FTAA negotiations, agreement on the modalities
(formulas or targets) to be followed for tariff reductions was not reached until late August (see
below). 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. To prepare U.S. negotiators for this next negotiating step, USTR
received public comments at a hearing on September 9 on the effects of eliminating tariffs
and non-tariff trade barriers and pursuing other market liberalization among FTAA countries.
Unresolved at the Panama meeting was whether to begin the process of reducing tariffs
from the applied tariff rate used by countries or from the most-favored-nation (MFN) rate
which is bound in the WTO. The choice is important because the MFN rates are generally
higher than applied rates. Observers have noted that cuts based on MFN rates could result
in little or no increase in potential market access. The United States, Canada, Mexico, and
Central American countries agreed to allow the Andean (Bolivia, Colombia, Ecuador, Peru,
Venezuela) and MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) countries some
flexibility in adjusting tariffs even after notifying what base rates they plan to use. The
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 insisted on reductions based on applied
rates. Opposed to that position were the CARICOM countries which held out for basing
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reductions on MFN rates.1 Trade ministers, at their August meeting in the Dominican
Republic, agreed that all countries (except CARICOM members) would start tariff cuts from
the current applied rates. CARICOM countries would be allowed to identify those
agricultural and other products where the maximum bound rate would be used as the reference
point for reducing tariffs. Negotiators now have turned to address the issue of the pace and
process to be followed to phase out tariffs over a 10-year period ahead of the next critical set
of meetings in late October in Ecuador. Final stages of the FTAA negotiations, to be co-
chaired by Brazil and the United States, will take place from November 2002 through
December 2004. (For more information, see CRS Report RL30935, Agricultural Trade in the
Free Trade Area of the Americas; and A Free Trade Area of the Americas in the CRS
Electronic Trade Briefing Book).
Agricultural Negotiations in the World Trade Organization
At the World Trade Organization (WTO) Fourth Ministerial Conference in Doha, Qatar,
in November 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
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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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.
Market access was discussed at a September 4, 2002, meeting, and domestic support
issues are set for discussion in late September. The chairman of the Agriculture Negotiating
Group was to prepare, by December 18, 2002, a draft paper based on the discussions so far.
The deadline for concluding the negotiations in the DDA, including those on agriculture, is
January 1, 2005.
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. position, first tabled in June 2000 and amplified in a July 2002
proposal, includes the elimination of agricultural export subsidies; substantial reductions in
tariffs (with no country’s individual tariff exceeding 25%); 20% increases in tariff-rate quotas
on agricultural imports; disciplines on state trading enterprises; and reductions in amber box
spending (trade distorting domestic support) to no more than 5% of each country’s total
agricultural production value – the objective being to make all countries’ domestic support
levels comparable in relative terms. Most of these changes would be phased in over 5 years.
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
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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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 CRS Report RS21085, Agriculture
in WTO Negotiations, a summary so titled in the CRS Electronic Trade Briefing Book; CRS
Report RL30612, Farm Support Programs and World Trade Commitments; and CRS Report
RS20858, Agricultural Export Subsidies, Export Credits, and the World Trade Organization.)
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
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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 have received 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 (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 CRS Report RL30198, Food Biotechnology in the United States: Science,
Regulation, and Issues; CRS Report RS20732, StarLink Corn Controversy: Background;
CRS Report 98-861, U.S. European Agricultural Trade: Food Safety and Biotechnology
Issues; 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 monitored
its compliance with the terms of its WTO agreement. By late 2001, the Administration
already was expressing concern that China would not be adhering to its commitments on
tariff-rate quotas (TRQs) for agricultural imports. After repeated delays in announcing
regulations for these TRQs, details were finally released this year – but China does not appear
to have provided the market access that the United States and other exporting countries had
expected under China’s WTO’s accession agreement when
There is concern also about new Chinese regulations for the approval and labeling of
farm products containing genetically modified organisms (GMOs), which are expected to be
finalized later this year. U.S. producers and Administration officials contend that so far, the
emerging rules appear to be vague, potentially conflicting, and administratively burdensome.
GMO regulations and how they are implemented could impede the nearly $1 billion of U.S.
soybean exports to China (much of the U.S. soybean crop now contains GMOs). In addition,
U.S. trade officials in Beijing said they believe China may be subsidizing corn and other farm
exports in violation of its commitment to end such subsidies. Furthermore, U.S. meat
industry officials contend that China is impeding imports of U.S. meat and poultry products
in violation of the country’s obligations under the bilateral 1999 Agreement on U.S.-China
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Agricultural Cooperation. Agriculture Secretary Veneman spent 3 days in China in late July
2002 to discuss these issues; and Administration officials are continuing to meet with their
Chinese counterparts in efforts to resolve problems.
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 $1.9 billion in FY2001 (although declining to an estimated $1.7 billion in FY2002),
making it the United States' seventh largest market for farm products. An additional $1.2
billion of U.S. farm products were shipped to Hong Kong in FY2001 (and an estimated $1.1
billion in FY2002), many of which were destined for mainland China. 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 CRS Report RS21292, Agriculture: U.S.-China Trade Issues; CRS Report
RS20169, Agriculture and China’s Accession to the World Trade Organization; and China's
Accession to the WTO in the CRS Electronic Trade Briefing Book.)
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 FY2006-2007. For the FMD program, funding will increase from the current $27.5
million per year to $34.5 million annually. 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 made 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.
The 2002 farm bill also reauthorizes the Food for Progress program through FY2007,
lifts funding caps on administrative costs and costs related to commodity transportation, and
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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 will 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. That
review recommended (also found 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.
The House Appropriations Committee on July 26, 2002, reported a FY2003
appropriation (H.R. 5263) that recommends budget authority of $1.491 billion in FY2003 for
USDA's international activities that are subject to annual appropriations (P.L. 480 food aid,
salaries and expenses of the Foreign Agricultural Service, and administrative expenses for
managing export credit guarantee programs). The House Committee level is $367 million
greater than enacted in FY2002 and $41.5 million greater than requested by the President for
FY2003. The Senate Appropriations Committee bill (S. 2801), reported July 25, 2002,
recommends budget authority of $1.464 billion, $27 million less than the House Committee
bill. S. 2801 is around $15 million greater than the President's request. Floor action on the
FY2003 bills had not yet occurred in either chamber as of late September.
Almost all of the additional funding in both bills goes to food aid programs. The
increased budget authority requested for FY2003 reflects a decision by the Administration to
phase out food aid that is dependent on surpluses and to pay for much of U.S. foreign food
aid with discretionary rather than mandatory spending. Although both bills recommend
increases in budget authority for discretionary food aid programs, the Committee reports also
stress the continuing importance of commodity assistance and the use of surplus commodities
in U.S. food aid programs. The Senate Committee report (S.Rept. 107-223), for example,
expresses strong disagreement with Administration decisions to phase out food aid based on
commodity surpluses.
For the CCC-funded EEP, H.R. 5263 limits spending to $28 million. In contrast, the
Administration had proposed $478 million for EEP, the maximum permitted by the 1996 farm
law and world trade obligations. For its proposed reductions from the authorized level, the
House bill scored savings of $450 million. Savings from EEP reductions were reallocated to
a variety of other USDA programs (although only about $1 million annually has been used
in recent years). In the past, the Congressional Budget Office has scored no savings for
proposed cuts to EEP funding, since actual spending in the program has been negligible.
However, this year, the House Budget Committee used the Office of Management and Budget
(OMB) score which allows dollar- for-dollar savings for cuts from the authorized EEP level.
House Committee actions imply a program level of around $6 billion for all of USDA's
international activities-food aid, export credit guarantees, export market development, and
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export subsidies. (For more information on both farm bill authorization and budget issues,
see CRS Issue Brief IB98006, Agricultural Export and Food Aid Programs.)
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 more than $120
million of U.S. wheat, corn, rice, poultry and other food products from U.S. agribusinesses
in order to quickly rebuild food reserves. This decision reflected a reversal in Cuban policy
to take advantage of the opening made by TSRA’s passage a year earlier, prompted by losses
of stocks caused by Hurricane Michelle that struck the island in early November 2001.
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
conference report filed on May 1, 2002, however, dropped the Senate provision to strike
TSRA’s prohibition of private financing of agricultural sales to Cuba. President Bush on May
20 in a major Cuba policy speech restated his opposition to efforts to remove this provision,
stating such a change "would just be a foreign aid program in disguise, which would benefit
the current regime." Secretary of State Powell and Secretary of the Treasury O’Neill in a joint
letter to House Appropriations Committee leaders in mid July reiterated they would
recommend that the President veto any legislation that weakened current policy toward Cuba
by permitting the private financing of agricultural sales, among other changes.
Nevertheless, some in Congress indicated they would offer amendments to permit private
financing of U.S. farm sales to Cuba to FY2003 appropriations measures. On July 23, the
House adopted by voice vote an amendment to the FY2003 Treasury-Postal Operations
appropriations measure (H.R. 5120) offered by Representative Moran that prohibits the use
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of funding to implement U.S. sanctions on private commercial sales of agricultural
commodities, medicine, or medical supplies to Cuba.
Separately, in reauthorizing export controls (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 CRS
Issue Brief IB10061, Exempting Food and Agriculture Products from U.S. Economic
Sanctions: Status and Implementation; and Cuba Sanctions in the CRS Electronic Trade
Briefing Book.)
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