Free Trade Meets U.S. Farm Policy: Life after the Uruguay Round

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I. Introduction

The significance of global agricultural production and trade became clear during the Uruguay Round of talks on the General Agreement on Tariffs and Trade (GATT),(1) as GATT members struggled to negotiate an agreement on the reduction of tariff and nontariff barriers to trade in agriculture. At the same time in the United States, especially during the early 1990s, the Bush Administration vigorously pursued free trade agreements as part of its policy of eliminating all trade barriers throughout the entire Western Hemisphere.(2) This commitment was evidenced in the Administration's support of the U.S. Canada Free Trade Agreement (CFTA),(3) the North American Free Trade Agreement (NAFTA),(4) the Uruguay Round,(5) and numerous bilateral agreements.

A number of developing countries in Latin America also adopted the goal of large-scale free trade through agreements with the United States, agreements among themselves and through active participation in the GATT talks.(6) Because many of these countries are heavily dependent upon agricultural products for export earnings, agricultural trade plays a critical role in their efforts to build free trade regimes.

As an industrial power, the United States has been a major player in the production and international trade of agricultural commodities since the early 1970s. Accordingly, the United States is able to exert great influence over the international market for agricultural goods not only through its trade policy, but also through its domestic agriculture policy.(7) Further, U.S. domestic agricultural policy functions as a constraint on other agriculture-exporting nations, especially those In the developing world, where trade tends to be agriculture-dependent.(8) Generally, U.S. farm policy, offers products farmers supplemental income through a variety of mechanism to compensate for domestic and international market forces that would not otherwise provide sufficient income to justify continued production. Because U.S. exports dominate the world market for certain agricultural products, U.S. farm policy has the potential to shape internal policy and markets in developing countries, as well as export options and earning power for their agricultural sectors.(10)

This Note examines the dilemma inherent in U.S. agricultural policy. On one hand, the United States is firmly committed to its farm support programs, which are designed specification to improve the competitiveness of domestic agricultural commodities in the world market through policies that pay U.S. farmers more for their products than the world market price. On the other hand, the United States apparently is equally dedicated to the pursuit of free trade, a regime in which producers compete in the world marketplace without any economic intervention other than each country's "natural" competitive advantages. The conflict between these policies becomes particularly evident when free trade negotiations Include agriculture-dependent nations, whose governments generally have no money to subsidize farm production, but whose products nevertheless must compete with subsidized products from the United States in the world market. How can the United States pursue free trade, specifically free trade with heavily agriculture-dependent nations, while continuing to fund huge subsidy programs for domestic farmers

This Note first examines the United States' power as an agriculture exporter and specific domestic programs employed to support farm incomes and exports. Though only sixteen commodities are covered by the programs, the list includes the most important agricultural export commodities in world trade. Not only do agriculture-dependent nations have a disadvantage in selling their agricultural products to the United States because of their level of economic development, they also must face U.S. subsidized products head-on in competition for export sales to the rest of the world. …