Bilateral & regional negotiations on agriculture: competitive liberalization or protectionist confusion?

Bilateral and Regional Negotiations on Agriculture:
Competitive Liberalization or Protectionist Confusion?

Tim Josling
Stanford Institute for International Studies

Colloque du 17 juin 2004 sur «La transformation agroalimentaire québécoise face à l’OMC, le Farm Bill et la PAC» organisé par le Fonds québécois d’adaptation des entreprises agroalimentaires

Introduction

• US Trade Policy under the present administration is based on the notion of competitive liberalization
• Willingness to negotiate away trade barriers at the multilateral, regional and bilateral level (subject to TPA)
• Historical precedent: 1934 Reciprocal Trade Agreements Act
• Current negotiations if completed and ratified will result in 26 countries having free-trade agreements with the US

• Canada has been less active in negotiating FTAs
• Completed FTAs with Chile, though Central America and Singapore FTAs not finished
• Bilateral with CARICOM would enhance Caribcan agreement
• Canada-EFTA talks on hold over natural resources

• Mexico has 11 FTAs with 33 countries
• In addition, the FTAA is still under “active” negotiation
• Miami Summit changed nature of the FTAA
• Puebla discussions were inconclusive
• Next Summit in Argentina Nov 2005
• Meanwhile...the APEC process meanders on with little urgency (coordinated unilateralism not working at present)

So the key questions are:

• Has the proliferation of FTAs led to meaningful trade liberalization in agriculture?
• Is bilateralism/regionalism an alternative to the Multilateral trade talks in the WTO? Or are they complementary?
• How might these agreements impact Canadian food and agricultural groups?

Have bilaterals and regional FTAs led to trade liberalization?

• “Old-style” FTAs tended to ignore agriculture (EFTA)
• Others agree on a “common” policy (EU)
&#8226 Since mid-1980s, agriculture usually included, but treated as a “sensitive” sector (CUSTA)
• Or some parts of agriculture are temporarily excluded (sugar in MERCOSUR)
• But some have led to significant liberalization in agricultural trade (US and Mexico in NAFTA)
• Others have not, because little farm and food trade is involved (US-Singapore)

“Liberalization” has to be seen in relation to existing access agreements

• CAFTA locks in CBI preferences
• Colombia FTA will lock in ATPA
• European EPAslock in Lomé/Cotonou preferences
• And each of them changes the ranking of “preferred” suppliers
• FTAA removes the bilateral preferences

What about the current crop of US bilaterals?

Focus on four that are illustrative
- US Chile FTA
- US CAFTA
- US Australia FTA
- US Andean FTA

US Chile
• Took ten years to complete, but now has entered into force
• Opens up Chilean market over a period of time to US exports (but Chile had low tariffs)
• Replaces price bands with safeguard system
• Frees access for Chilean goods in US market
• Offers possible platform in Southern Cone for investment

US CAFTA
• Took a year to complete
• Locks in CBI preferences for CA in US market
• Gives slow access to US agricultural goods, with safeguard against import surges
• Quota increase for CA sugar but no change in above-quota tariff
• Not yet presented to US Congress: may have difficulty passing House

US Australia
• Took two years to complete
• Sensitive issues on dairy, sugar, SPS standards
• Opens up US market to Australian goods
• Sugar excluded from agreement
• Opens up Australian market for US goods
• Not yet presented to Congress but likely to pass

US Andean FTA
• Negotiations started this summer
• Would lock in Andean Trade Preference Act access to US market (to avoid future lapses)
• Sensitive imports into Colombia will be a problem: Andean Community Price Band may need to be replaced
• Likely to be seen as improving stability in region

Competitive or Complementary with Multilateral Talks?

• Bilaterals are better at improving market access for (smaller) preferred partner
• Less threat to domestic sectors than WTO
• Possible to enhance safeguards (though many are of a transitional kind)
• Supplement WTO dispute settlement arrangements
• Also may include WTO + SPS agreements
• But cannot deal effectively with export subsidies, so as not to lose out to competitors
• Cannot deal with domestic support, for fear of allowing free riders (unless totally decoupled)
• So WTO is needed as a complement
• Most US bilaterals have clauses that exhort the partners to solve these issues in the WTO

Bilaterals/Regionals pose problems for WTO

• Preferences may lock in vested interests and hence make WTO agreement less feasible
— Lomé preferences into the EU market would be eroded
— Canadian and Mexican preferences in US market would also be eroded
• FTAs may “cherry-pick” the easiest trade agreements, leaving the most difficult to the WTO
— US and Brazil are both reluctant to open up their markets in the FTAA
• FTA with “high cost” supplier leads to trade diversion (displaces “low cost” supplies from third countries)
• FTA can lead to investment in “wrong” countries just to get access (investment diversion)
• Too many simultaneous negotiations can overstretch resources (attention diversion)
• Some FTAs can be “strategic”
— MERCOSUR trying to get rest of South America into its “camp” before dealing with US/NAFTA
• Some can be competitive
— EU and US competing for MERCOSUR market
• These are likely to distract from WTO or distort the multilateral nature of Round

Implications for Canadian Agriculture and Food Sector

• Limited impact on Canadian exports of US bilaterals in Americas
— US-Chile: US catches up with Canada
— CAFTA: US ahead of Canada
— Andean FTA: US gains preferential access over time
• Somewhat more impact from US-Australia, US-Thailand: US gains preference
• Some opportunities for investment in these countries to serve the North American market
• Implications for FTAA unclear, but likely to accelerate the process
• Effect of bilaterals will diminish when FTAA grants general market access in hemisphere
• WTO agreement will also reduce significance of bilaterals

Conclusions

• WTO much more significant for Canadian agriculture and food sector
• US bilaterals significant for the smaller partner but no direct impact on WTO process
• Canada should “catch up” with the US to avoid being left out of emerging markets
• Better to focus on larger markets (Korea, Brazil, Japan, India and China)

source: FQAEA