AGRICULTURAL TRADE Peter Kuperis Senior Trade Policy Analyst Alberta Agriculture and Food (780) 415 –8608 [email protected]

AGRICULTURAL TRADEAGRICULTURAL TRADE

Peter Kuperis

Senior Trade Policy Analyst

Alberta Agriculture and Food

(780) 415 –8608

[email protected]

ARCHITECTURE OF TRADEARCHITECTURE OF TRADE

OVERVIEWOVERVIEW

Trade is the exchange of goods and services across national borders

Trade operates at three different levels– Global– Regional/bilateral– Internal

Trade agreements set the rules of trade between two or more jurisdictions

OVERVIEWOVERVIEW

Countries regulate trade through:– Tariffs (tax on imports)– Quotas (quantity or value limits)– Regulations (health, packaging,consumer

protection)– Export taxes – And other methods

WTOWTO

Global trade is governed through the World Trade Organization (WTO)– 150 members– Began as GATT – General Agreement on

Tariffs and Trade– Objective is to liberalize trade by reducing

tariffs and eliminating subsidies– Agriculture was added to global trade rules in

1994

WTOWTO

WTO gives its members a forum for settling disputes

Can challenge another country’s subsidy or regulations through dispute settlement

E.g. EU beef hormone ban, US cotton, Canada dairy

WTOWTO

WTO Agreement on Agriculture– Contains tariff reduction commitments by

member countries 34% average reduction was agreed to in 1994

– Defines 3 types of subsidies – amber, blue, green

– Limits export subsidies and gradually reduces them

WTOWTO

Amber– Most trade and production distorting– Amount of spending on amber programs is

limited U.S. yearly limit is US$19.1 billion Canada’s limit is $4.3 billion

– Example – pay farmers $3/bu of wheat Incentive to grow wheat regardless of price and

other market conditions

WTOWTO

Blue– aka “the blue box”– Trade and production distorting programs BUT

limits are placed on production– e.g. per head payment on cattle but number of

cattle per acre is limited– Currently have no limits on blue box spending – “Transition mechanism” away from amber

programs

WTOWTO

Green– aka “Green box”– Least trade and production distorting– Payments cannot be based on current prices or

production levels– e.g. income support payments, environmental

programs, research, infrastructure – No limits on spending

WTOWTO

Export subsidies– Payments contingent on export– Most trade distorting type of subsidy– E.g. EU “export refunds”

Pays farmer difference between price received for product exported and the domestic price

WTOWTO

Also have rules on regulations to protect animal, plant and human health (SPS)

Rules on use of technical barriers to trade (TBT) – e.g. labelling, standards, packaging, grading)

WTOWTO

New round of negotiations is underwayDoha Round

– Launched in Doha, Qatar in Nov 2001– Focused on 3 pillars – Market access, Domestic

support, Export competition– Negotiations are still going on and agriculture

is one of the most difficult areas– Hope to conclude negotiations in 2008

WTOWTO

Market access– Tariffs, tariff rate quotas, special safeguards– Have agreement to reduce highest tariffs the

most (tiered formula)– Members will be able to designate a certain

number of products as “sensitive” and make smaller tariff reductions

– Tighter rules on use of safeguards

WTOWTO

Domestic support– Large reductions in amber spending under

negotiation US limit could go from US$19.1 billion to US$7.4

billion Canada from $4.3 billion to about $2 billion

– Cap on blue box payments– No substantial change to green

WTOWTO

Export Competition– Export subsidies, export credits, food aid, state

trading enterprises– Elimination of all export subsidies by 2013– Tighter rules on export credits and food aid– Rules on operation of state trading enterprises

(e.g Canadian Wheat Board)

WTOWTO

Advantages of WTO– Global – access to many markets– Deals with subsidies (“level playing field”)– Effective dispute settlement mechanism

Disadvantages of WTO– Long, slow negotiations– Slow, expensive dispute settlement

Bilateral/RegionalBilateral/Regional

Agreements between two or more countries Bilateral agreements address market access but

usually don’t deal with subsidies Currently there ar380 bilateral agreements,

expected to grow to 400 by 2010 Canada has bilateral agreements with many

countries:– NAFTA (US, Mexico)– Israel


Canada has agreements (cont’d):– Costa Rica– European Free Trade Association (Norway,

Switzerland, Liechtenstein, Iceland)– Chile

Canada has/is negotiating with– Dominican Republic & CAFTA (Honduras, Nicaragua,

El Salvador, Guatemala)– Peru. Columbia– South Korea


Canada has/is negotiating with (cont’d):– Singapore– CARICOM (Antigua and Barbuda, Bahamas,

Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago

– Jordan


Bilateral agreements usually govern:– Tariffs– Regulations– Rules of Origin

Excellent tool for gaining market access but don’t bring a “level playing field”


NAFTA has been a highly successful trade agreement.– Since 1994 the total value of Canada-US-

Mexico trade grew to US$ 845 billion in 2006 – Total Canada-US trade grew from US$199

billion in 1994 to US$509 billion in 2006– Alberta ag exports to US grew from $1.9 billion

in 1995 to $2.6 billion in 2006.


Advantages of Bilateral agreements– Faster, simpler to negotiate– Market access

Disadvantages– Don’t address subsidies– Often have poor dispute settlement mechanisms


What should be priority countries for bilateral trade agreements?

INTERNAL TRADEINTERNAL TRADE

Agreements governing trade within a country Canada has the Agreement on Internal Trade

(AIT)– July 1, 1995– Governs trade in many areas including agriculture– Primarily deals with Provincial and Federal regulations– Each sector has its own Chapter – its own rules– Dispute settlement – no penalties for failure to comply

Quebec margarine


AIT– Currently under review

Alberta has 2 more inter-provincial trade agreements– Trade Enhancement Agreement on Agriculture

BC, Alta, Sask, Manitoba, PEI, Yukon Expands agricultural trade beyond AIT


Alberta agreements (cont’d)– Alberta-BC Trade Investment and Labour

Mobility Agreement (TILMA) April 1, 2007, transition to April 1, 2009 Governs trade in all sectors, one set of rules for all

sectors Effective dispute settlement with monetary penalties

Alberta’s Trade ObjectivesAlberta’s Trade Objectives

Trade Liberalization– Maximum possible market access– Lowest possible levels of trade-distorting

support– Elimination of export subsidies

THE DEVIL’S DETAILSTHE DEVIL’S DETAILS

WTO DisputesWTO Disputes

EU beef hormone ban (SPS)– Continued non-compliance and retaliation

Canada dairy (Export subsidies)– Removed Canada’s ability to export dairy

productsCanadian Wheat Board (Subsidies)US corn subsidies

– Alleges US has exceeded its amber limits

TariffsTariffs

Tariff parity between Canola and soybeansHigh tariffs and restrictive TRQ’s for beef

and porkTariff escalation

– Tariff on processed product significantly higher than on raw material

– E.g. tariff on canola seed – 10%, canola meal – 25%, canola oil – 80%

Regulatory BarriersRegulatory Barriers

Beef market access post-BSEPotato cyst nematode

– US, Mexico

Ractopamine residues in pork– China, Taiwan

EU regime for licensing genetically modified organisms

Trade in Major CommoditiesTrade in Major Commodities

Wheat– Canada had exports of $ 4.7 billion in 2007– Top 5 markets in 2007 were the US, Indonesia,

Japan, Mexico and Iraq

Canola– Canada exported $ 2.26 billion in 2007– Top 5 markets: Japan, Mexico, China, US,

Pakistan


Barley– Exports of $ 765 million in 2007– Top markets were: Saudi Arabia, US, China,

Japan, Columbia – $315 million of this total was malt barley– Top malt markets were: US, Japan, Brazil,

Venezuela, South Korea


Fresh and frozen pork– Exports of $ 2.7 billion in 2007– Top 5 markets: US, Japan, Australia, South

Korea, Russia

Fresh and Frozen beef– Exports of $ 1.2 billion in 2007– Top 5 markets: US, Mexico, Hong Kong,

Japan, Macau


Dairy– Exports of $232 million in 2007– Top 5 markets: US, UK, Egypt, South Korea,

Mexico

Poultry meat– Exports of $ 238 million in 2007– Top 5 markets: US, Hong Kong, South Africa,

Philippines, Macedonia



Case Study: Beef and CattleCase Study: Beef and Cattle

In 2002 beef exports were $ 2.2 billion and exports of cattle were $ 1.8 billion

In 2003 BSE was found in CanadaVirtually all borders closed to Canadian

cattle and beef overnightDevastating impact on beef and cattle

industry


US also found BSE in late 2003 and experienced the same border closures

Due to a common policy of “one case and you’re out”

US and Canada began negotiating for renewed access to markets

Worked with other major beef exporting nations to get a new set of World Animal Health Organization (OIE) guidelines


New OIE guidelines say that if a country has proper BSE safeguards in place then all beef products are safe for trade

Canada has slowly regained access to major beef markets:– US restored access in stages:

Boneless UTM in August 2003 All UTM and live UTM cattle in July 2005


US Access (cont’d)– November 19, 2007 - Restored access for all

cattle born after March 1, 1999 for any purpose– Effectively restores almost all of former trade

with US

Mexico– UTM beef and dairy breeding cattle under 30

months of age


Japan– Canada has access for boneless beef from

animals under 21 months of ageSouth Korea

– No access for beef or live cattle– Negotiations very slow and difficult

China– No access for beef or live cattle



Macau– All beef

Hong Kong– Boneless UTM

Taiwan– Boneless UTM

Cuba– Open to all beef and cattle


Negotiating approaches– US – Access according to OIE and nothing less– Canada – has taken a similar approach but less

aggressively– Both countries accepted staged access in the

past

What to do with China and South Korea?


Other market access barriers for beef– EU hormone ban– High tariffs and a safeguard in Japan– Likely to be designated as a sensitive product

by many countries

Case Study: CanolaCase Study: Canola

In some markets soybeans are charged a lower tariff than canola– China charges a tariff of 9% on canola and 3%

on soybeans (temporarily reduced to 1%)

Canola also faces tariff escalation– Japan:canola seed no tariff

canola oil 10.90 yen/kg - 13.20 yen/kg


Tariff escalation (cont’d)– Korea: canola seed 10% refined canola oil 30%

soybean oil 5.4%

– Taiwan : canola seed 0 – 9% canola oil 4.3% - 15% soybean oil 5% - 8%


How to address tariff parity?How to address tariff escalation?How to address regulatory barriers?


Other canola access issues– EU regulations on genetically modified

organisms– Maximum residue limits on herbicides and

pesticides– Quebec bans on coloured margarine and dairy

blends

““New Frontiers” of TradeNew Frontiers” of Trade

Genetically modified organismsBiofuels - An agricultural product or an

industrial product?Who matters – rising importance of China,

India and other emerging economiesProduction processes – organic, naturalGeographic indicators – champagne,

parmesan

ConclusionsConclusions

Trade operates on three levels:– Global, bilateral, internal– Global deal is best way to deal with subsidies– Bilaterals focus on market access– Internal trade primarily about regulations

Alberta government favours maximum possible trade liberalization

CONCLUSIONSCONCLUSIONS


Trade can be very complicated– Combinations of tariffs, regulations and other

barriersSmall, open economies like Canada benefit

from a rules-based trading system– Don’t have economic power to force borders

open– Don’t have large enough population to be a

priority for other nations


Humans are very creative– As traditional barriers come down (e.g. tariffs)

new ones are created– New products and processes create demand for

new regulations and trade rules (e.g. biofuels)

Increasing trade also creates debates within a country– Winners and losers

Documents

AGRICULTURAL TRADE Peter Kuperis Senior Trade Policy Analyst Alberta Agriculture and Food (780) 415 –8608 [email protected]