National Center for Policy Analysis

MONTH IN REVIEW

Agriculture

March, 1996

FREE MARKETS AND AGRICULTURE

International trade is moving in the direction of freer trade by international agreement. Unfortunately, the United States has been taking steps in the opposite direction, specifically in its agricultural trade policy.

Under the North American Free Trade Agreement (NAFTA) and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), trade barriers must be reduced:

• Trade restrictions based on health or safety threats to humans, animals or plants must be scientifically demonstrated.
• Nontariff trade barriers must be converted to tariffs within the limits set by GATT.
• Agricultural tariffs, for example, must be reduced by 36 percent over six years in developed countries and over 10 years in developing countries.
• Subsidies for agricultural exports must be reduced by 21 percent in volume and 36 percent in budget outlays over a six-year period.

Yet the Uruguay Round agreement allows increased barriers to imports. Thus, in the U.S.:

• The agreement allowed an increase in the tariff for sugar and a reduction in expected access.
• Beef imports will receive more protection because the quantity that may be imported at the lower tariff rate set by GATT is smaller than actual imports in most years under the old law.
• More dairy products will probably be imported, but the quantities will be limited, keeping domestic prices well above those of potential imports.
• Peanut prices will remain about twice as high as they are internationally.

Specific farm interests will continue to benefit from subsidy programs that pay exporters the difference between the lower world market price and domestic price, and pay for marketing and overseas advertising.

Source: Daniel A. Sumner, Agricultural Trade Policy: Letting Markets Work (Washington, DC: American Enterprise Institute, 1995).