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1997 Crucial for International Trade

PULLMAN, Wash. — 1997 may be crucial for international trade, especially in agricultural products.

Many major trade initiatives were on hold during the 1996 presidential election campaign. But they can either regain momentum or fizzle in 1997.

Both President Clinton and Sen. Bob Dole kept trade off the agenda partly to marginalize the stance of Patrick Buchanan and Ross Perot. Now, assured of a new four-year term, President Clinton appears intent on making trade a center of his administration’s new foreign policy.

The political climate in most other major world powers also is favorable for trade negotiations. Having recently become the longest-serving German chancellor since Bismarck, Helmut Kohl is at the peak of his power and influence. French President Jacques Chirac appears to have gained control after a rocky start to his presidency. Japan’s Liberal Democratic Party has returned to power. Only Britain faces a major election in the next year.

Many crucial trade issues must be tackled in 1997.

There is much unfinished business to implement World Trade Organization agreements. (WTO is the successor to the General Agreement on Tariffs and Trade.) Much of this business affects agriculture. Tariffs are still high, quantitative restrictions are numerous and phytosanitary barriers are endemic.

The United States and other agricultural exporters want preparations for the next round of WTO trade negotiations to begin immediately. Japan and Korea are leading the opposition, arguing that the Uruguay Round agreement does not require these preparations to begin until 1999.

Needless to say, even talk of freer trade in agriculture is politically difficult in these countries.

Promoters of the North American Free Trade Agreement have been embarrassed by the political, economic and social implosion in Mexico that began in 1995 and continued in 1996. It now appears that NAFTA has benefitted agriculture in Canada and the United States.

President Clinton has been committed to extending NAFTA to other countries, with Chile the first candidate. He still must resolve a feud with the Republican-controlled Congress over renewal of presidential “fast track” authority to negotiate trade agreements. Under fast track, Congress can only vote up or down any agreement negotiated by the administration.

President Clinton wanted that authority extended so he could include labor and environmental clauses in trade agreements. The majority in Congress opposes that move. So, either President Clinton will have to drop labor and environmental clauses from his request or Congress will have to have a change of heart if the stalemate is to end.

Both may be pushed to compromise by developments during their standoff. Canada and Chile decided to go ahead with their discussions on Chile’s accession to NAFTA without waiting for the United States.

Mercosur, a free trade area dominated by Brazil, eliminated most internal trade barriers between its members (Argentina, Brazil, Paraguay and Uruguay) in January 1995, but is pursuing a less inclusive approach to free trade than the United States would like. It may be difficult for the United States to build support for its vision of a Free Trade Area of the Americas after abdicating leadership for more than a year.

The United States also allowed the momentum behind free trade within the Asia Pacific Economic Cooperation forum to slip. President Clinton sent APEC partners the wrong signal when he skipped the APEC leaders’ meeting in Tokyo in November 1995 because he was having one more tiff with the Republican leadership over the federal budget.

That meeting produced an agreement that each member would develop plans to bring APEC closer to free trade. In the case of agriculture, the proposals for concessions from countries like Japan are rather sparse. The United States, which has much to gain from freer trade in agriculture within APEC, also came up with a very timid proposal.

These plans were accepted at the November 1996 APEC summit in Manila. Next year’s chair, Canada, indicated that it will focus heavily on reviewing performance of these plans. Each member must also propose next steps to liberalization.

Canada will also host a major conference next year on the “Impact of Food, Energy, the Environment and Expanding Population” within APEC. This conference has critical implications for agricultural trade policy within APEC.

APEC offers U.S. agriculture tremendous immediate potential for export growth. Robbin Johnson, vice-president of Cargill, Inc., estimates that food supplies must increase nearly 100 percent in East Asia and nearly 150 percent in South Asia in the next 30 years to meet the food needs of growing, more affluent populations of those areas.

Ohio State University’s Luther Tweeten has estimated annual benefits to U.S. agriculture from liberalizing agricultural trade within APEC will be 7 to 8 times as great as those gains achieved after the Uruguay Round of GATT was fully implemented.

Conversely, delay in liberalization of agricultural trade within APEC will be particularly costly to U.S. agriculture. The European Union added three new members in 1995 and would like to add more from Eastern Europe. This increases the urgency of seeking global liberalization through WTO.

U.S. agricultural exports set new records in fiscal year 1996, reaching an estimated $60 billion in sales. The biggest absolute gain was in the grain sector due to higher prices. There were also healthy gains in fruits, nuts, and oilseeds. However, if these three growth categories are excluded, the remaining agricultural exports were virtually unchanged from the 1995 fiscal year. There were decreases in exports of dairy products, hides and skins, cotton and vegetables.

U.S. agricultural exports were higher in almost every major region including the European Union, Eastern Europe, the former Soviet Union, Asia, Africa and Latin America. The only notable declines were in trade with China (down 17 percent) and Oceania (down 29 percent).

It now appears that much of the huge jump in U.S. agricultural exports in 1995 and 1996 was due to transient factors related to shortages in the world grain and oilseed markets, shortages which by now have been almost corrected.

Gains from this base in the near term may be quite difficult. Indeed, U.S. Department of Agriculture forecasts suggest that total agricultural exports may decline in fiscal 1997 by more than 3 percent.

Clearly, most future gains in agricultural exports will have to come from a more sophisticated targeting of specific markets and a willingness to adapt product characteristics to meet customer needs and competitive challenges.

Only the largest commodity groups in the Pacific Northwest have the personnel or infrastructure to carry out such a strategy, and state legislatures have gutted once excellent state programs that could have given leadership. There is an urgent need to re-examine the role of public-private partnerships in strengthening Pacific Northwest agricultural exports.

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