Agricultural Trade Issues in the 107th Congress

Agricultural Trade Issues in the 107th Congress

Order Code IB10077
Issue Brief for Congress
Received through the CRS Web
Agricultural Trade Issues
in the 107th Congress
Updated January 17, 2003
Charles E. Hanrahan, Geoffrey S. Becker, and Remy Jurenas
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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
Country-of-Origin Labeling
Sanctions and Agriculture

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Agricultural Trade Issues in the 107th Congress
SUMMARY
The 107th Congress considered a variety
Congress closely monitored the Adminis-
of trade issues with implications for the U.S.
tration’s involvement in various trade negotia-
agricultural sector. Trade in agricultural
tions that could further liberalize trade in
commodities and food products affects farm
agriculture and other economic sectors. These
income and rural employment, and it also
include the multilateral Doha Round under the
generates economic activity beyond the farm
auspices of the World Trade Organization
gate. With agricultural export sales the equiv-
(WTO); the hemispheric Free Trade Area of
alent of about 25% of gross farm income,
the Americas (FTAA); and bilateral agree-
some policymakers view U.S. efforts to de-
ments with Chile, Singapore, Morocco, and
velop market opportunities overseas as vital to
Central America, among others.
the sector’s financial health. Decisions by the

Bush Administration, and actions taken by
Following agreement on the terms of
Congress, thus could affect the outlook for
China’s accession to the WTO, Congress
agricultural trade.
focused on ensuring that China adheres to its
commitments to open markets to U.S. agricul-
U.S. agricultural exports are forecast to
tural products. Despite such commitments,
improve through FY2003. Agricultural
U.S. agricultural exporters continue to en-
groups and their supporters in Congress be-
counter major obstacles to Chinese markets.
lieve that the pace of improvements depends
partly on U.S. trade policies that: (1) aggres-
Lawmakers introduced bills to ease the
sively reduce foreign-imposed barriers to U.S.
tight rules on permitted food sales to Cuba.
farm products, (2) hold other countries ac-
Farm bill conferees rejected a Senate plan to
countable for commitments they have already
permit private financing of such sales, but the
made in existing trade agreements, (3) resolve
issue surfaced in other legislation.
festering disputes with major trading partners,
and (4) fully use U.S. Department of Agricul-
On May 13, 2002, the President signed
ture (USDA) export and food aid programs.
into law an omnibus farm bill (P.L. 107-171)
On the other hand, some continue to press for
with a trade title amending and extending
restrictions on various agricultural imports , to
export and food aid programs through
protect U.S. producers from what they view as
FY2007, and containing more stringent coun-
unfair foreign competition.
try of origin labeling requirements for food
imports.
On August 6, 2002, the President signed
into law fast track, or trade promotion au-
USDA’s FY2003 appropriation, not
thority (TPA) (P.L. 107-210), to negotiate
finalized by the end of the 107th Congress, will
future trade agreements, capping a lengthy and
determine annual funding for USDA trade
often contentious debate in the 107th Congress.
and food aid programs. Separate measures
Many, but not all, commodity and food indus-
address concerns about the treatment of genet-
try groups favor TPA, arguing it gives U.S.
ically engineered crops and food products in
trade negotiators greater credibility and facili-
international trade.
tates the passage of legislation to implement
future trade agreements.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Agricultural export and food aid programs that require appropriations are operating
under a continuing resolution (P.L. 107-294) that allows spending at FY2002 levels.
Congress did not take up the FY2003 agriculture appropriations measures (H.R. 5263 and
S. 2801, respectively) that were reported in July by their respective Appropriations
Committees. These bills contain funding levels for the full year for several international
agricultural programs – export subsidies, market development programs, export credit
guarantees, and food aid.
USDA on October 8, 2002, issued guidelines for the voluntary phase of country-of-
origin labeling of fresh fruits and vegetables, red meats, seafood, and peanuts, a program that
will become mandatory for many retailers in 2004, under the 2002 farm law.
Congress continues to monitor the Bush Administration’s involvement in, and plans for
begin new, trade negotiations. Each of these negotiating venues – whether multilateral,
hemispheric, or bilateral – has varying implications for U.S. agricultural trade and U.S. farm
and agribusiness interests.
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 measure
contains agricultural trade negotiating objectives, and mandates extensive consultation with
the House and Senate Agriculture Committees during trade negotiations.
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 was 43.5% for wheat, 53.3 % for rice, 20% for corn, 43.1 % 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 $1.47 in supporting non-farm activities. Agricultural exports generated an estimated
740,000 full-time civilian jobs, including 444,000 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.
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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),
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 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 8.8% in 2000.
Agricultural imports have risen by 83% over the last decade, from $22.7 billion in FY1991
to $41 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 $6.6 billion) accounted for 17% of all agricultural imports in FY2001. The
value of competitive imports was nearly $33 billion (83% 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
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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.
(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 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 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
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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
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, most agricultural commodity and farm
organizations 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
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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.)
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 dealt 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 the transition periods agreed upon for
market access, rules of origin, safeguards against import surges, 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 a free trade agreement with Jordan; P.L. 107-
52 – H.J.Res. 51 – to normalize trade relations with Vietnam). Now that TPA is law,
President Bush and USTR Ambassador Zoellick have signaled their intent to conclude free
trade agreements (FTAs) with Chile and Singapore by year end, and plan to initiate bilateral
negotiations with other trading partners early in 2003.
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. On April 23, 2002, the President announced that the United
States will seek an FTA with Morocco. USTR officials have since notified Congress that
negotiations with El Salvador, Guatemala, Honduras, Costa Rica, and Nicaragua, and
separately with Morocco, will be launched early in 2003. On November 4, 2002, USTR
notified Congress of its intent to begin FTA negotiations with South Africa and the other
members of the Southern African Customs Union (Botswana, Lesotho, Namibia, and
Swaziland) next February. U.S. trade officials and some Members of Congress have also
mentioned Australia, Korea, New Zealand, and Taiwan as other FTA candidates. An FTA
proposed last year by Australia 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). 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.
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Chile. The United States and Chile reached agreement on an FTA that would phase
out agricultural tariffs and quotas over a 12-year period. The final text of the agreement,
however, has not been released by USTR or Chilean authorities.
The United States over the last decade has recorded a growing agricultural trade deficit
with this major trading partner in Latin America. In 2002, U.S. agricultural exports to Chile
totaled $109 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, $1.124 billion. Sales of fresh fruit (primarily table grapes),
wine, fruit juices, and planting seeds accounted for 90% of this total.

With TPA passage, both governments agreed upon a negotiating schedule with the
objective of finalizing an agreement by year end 2002. As negotiations reached final stages,
negotiators from both sides acknowledged that disagreements on the FTA’s prospective
agricultural provisions were among those most difficult to resolve..

U.S. negotiators pressed for increased market access for commodities (wheat, wheat
flour, edible vegetable oils, and sugar) now protected by Chile’s price-band system. In the
FTA, Chile has agreed to phase out the 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.
Negotiations were likely 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.
Chile views the agriculture provisions of a prospective FTA important to its economic
growth, because agricultural exports represent one-third of Chile’s total exports to the U.S.
market. Its negotiators sought reductions in U.S. tariffs on the horticultural products it ships
to the United States, as well as 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 grapes, raspberries, and salmon.
Negotiators found the pace at which to allow access into each domestic market for the
other country’s most sensitive agricultural products a difficult issue to bring to conclusion.
Resolution of this and related market access matters appear to be tied to how Chile responds
on removing certain SPS barriers that now limit certain U.S. agricultural exports to that
market (see below), according to the U.S. lead negotiator. Both sides reportedly have agreed
to use TRQs for such products, to initially apply the current most-favored nation tariff on
above-quota imports, and not to exclude any products from the agreement. Each side
differed, though, on the timetable for phasing out protection for its most sensitive agricultural
products. The United States sought a 10- to 15-year transition period for granting duty-free
access on its most sensitive list; Chile favored a maximum 12-year period for eliminating
tariffs on its most sensitive items. U.S. producers of apricots, mushrooms, cling peaches,
fruit juices, and other horticultural products requested exemptions or long tariff reduction
periods in the final FTA. Chilean producers of price band-covered commodities similarly
sought the longest transition period possible. Protection on less sensitive agricultural
products will be phased out in stages over shorter periods. Tariffs on some would be
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eliminated immediately; on other products, tariffs would disappear over either a 4- or 8- year
period.
The United States also sought a special safeguard mechanism to protect against surges
in agricultural imports during the transition period. Reflecting this, USTR specifically
included in its negotiations’ notification to Congress that “improving import relief
mechanisms as appropriate” is one of the U.S. agriculture objectives in this FTA. Chile
reportedly also favors an agricultural safeguard, but both sides have not reached any
agreement on specifics. Negotiators are also grappling with rules of origin that would apply
to each country’s imports. Chile sought more flexible provisions, while the United States
pressed for tight rules that limit the FTA’s benefits to products derived from Chilean in
origin materials (applicable to fruit juice and canned fruit, as examples).
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
and poultry products, and certain fruit to the Chilean market, the United States is pressing
to ensure that such matters in the future are addressed using WTO rules and procedures.
Each country has reportedly agreed to recognize the other’s beef grading rules. Both
countries are still seeking to resolve outstanding SPS issues so that they do not affect market
access. These include mutual acceptance of each other’s beef and pork inspection systems,
Chile’s salmonella testing requirement for U.S. poultry products, and U.S. procedures
affecting horticultural imports, such as clementines entering from Chile. (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 2002 totaled $242.4 million, compared to $52.2 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 market access provisions (including those that pertain to agricultural
goods) and rules of origin. Negotiations did not conclude by year end 2002. (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
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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 later than December 2005. Leaders committed also to make the trade negotiation process
more transparent and accessible.
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 top
Brazilian officials. 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 mixed 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
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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
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. A November 1 meeting of trade ministers in Quito,
Ecuador, finalized the negotiating pace and process to be followed over the next 2 years.
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). A first phase of agricultural
trade negotiations had been underway since early 2000. The DDA incorporates those
negotiations into a comprehensive multilateral trade negotiation and begins a second phase
of negotiations in agriculture.
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.
During 2002, WTO member countries discussed the issues of market access, export
competition, and domestic support. These discussions are expected to culminate in
agreement by March 31, 2003 on “modalities” (e.g., formulas for reducing tariffs or
timetables for reducing export subsidies) for achieving the objectives mandated by the Doha
Declaration Once agreement on modalities is reached, member countries will begin to
negotiate individual country schedules or lists of commitments. Member countries will differ
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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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. To facilitate the process
of reaching agreement on modalities, the chairman of the Agriculture Negotiating Group
issued on December 18, 2002 a draft paper summarizing the various proposals for
modalities. 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
2002. 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.
Ultimately, according to the U.S. proposal, tariffs and domestic support also would be
eliminated.
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. In sharp contrast to the U.S.
position, the EU calls for applying Uruguay Round Agreement formulas as modalities which
would yield progressive reductions in tariffs and subsidies but not elimination. The EU
also has conditioned its support for export subsidy reduction on negotiating disciplines for
export credit programs and food aid programs. A recent agreement between France and
Germany to maintain EU domestic farm support at current levels and postpone any
reductions in support until 2007 may make it more difficult for the EU to agree to
agricultural trade reforms in the current round. Developing countries who constitute the
majority of WTO members are calling 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 support the inclusion of agriculture in a broader
multilateral trade round. 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 producers of import-sensitive crops, who feel disadvantaged by
previous trade agreements (i.e., NAFTA) or threatened by possible new agreements to reduce
protection, are not as enthusiastic about U.S. participation in a new round.
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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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 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, their potential health and environmental
effects, and the role of risk assessment in determining food safety.
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. New legislation on GMO approvals
went into effect in the EU on October 17, 2002, but a de facto moratorium on approvals in
place since 1998 remains in effect until legislation for tracing GE crops through the
marketing chain and for labeling products that contain GE ingredients (including products
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where no trace of modified DNA is present) is approved and takes effect, presumably 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 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 2002, 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 – 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 in 2003. 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 $1.8 billion in FY2002, making it the United States' seventh largest market for farm
products. An additional $1.1 billion of U.S. farm products were shipped to Hong Kong 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
sets a minimum tonnage of 400,000 metric tons per year. The farm bill authorizes the
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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 did not complete action on agricultural
appropriations legislation during the 107th Congress . Currently the programs are being
funded under a series of continuing resolutions. The Bush Administration's FY2003 budget
request for USDA's international activities estimated 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 (as did the
President’s 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.
Complicating the Administration’s proposals to phase out food aid based on surpluses
(i.e., food aid provided under Section 416(b)) is the large number of food crises occurring
around the world and the apparent inability of the United Nations World Food Program to
mobilize sufficient food aid resources to meet estimated needs. Severe food shortages in
southern Africa, the Horn of Africa, North Korea, Central America, and Afghanistan are
putting pressure on the ability of the international donor community to respond. The United
States has been the major contributor of food aid mainly via the WFP to the affected
countries, but the demands for food aid during the current fiscal year could exceed the
amount of food aid that has been proposed in appropriations legislation.
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.
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
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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 export subsidies. (For more information on both farm bill authorization
and budget issues, see CRS Issue Brief IB98006, Agricultural Export and Food Aid
Programs.)
Country-of-Origin Labeling
The 2002 farm bill (P.L. 107-171) contains a provision (in Title X) for grocery stores
to provide country-of-origin information for buyers of fresh fruits and vegetables, red meats,
seafood, and peanuts. The initiative is voluntary until September 30, 2004, when it becomes
mandatory. (The law exempts processed products, and dining-out establishments, from the
requirement.) USDA on October 8, 2002, issued guidelines for the voluntary phase of the
controversial labeling program, which supporters view as providing U.S.-raised products
with a competitive edge and consumers with more information about their purchases.
Opponents argue these guidelines will constitute an unfair trade barrier, excessively costly
to implement and enforce. (See CRS Report 97-508 ENR, Country -of-Origin Labeling for
Foods.)
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 TSRA, opponents succeeded in inserting the restrictive provisions that apply to Cuba.

Under the new policy, Cuba since late 2001 has made cash purchases worth about $130
million of U.S. wheat, corn, rice, poultry and other food products from U.S. agribusinesses
in order to quickly rebuild food reserves lost in a hurricane and to cover its food import
needs.
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Members of Congress opposed to TSRA’s prohibitions, particularly with respect to
Cuba, 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. 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 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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