14 November 1997

Free trade proves

to be a 2-way street

US farmers view things like Australian and Canadian wheat

boards and the NZ strength in the world dairy market as

anti-competitive. They dont much like European resistance

to hormone-fed beef, and genetically modified maize and

soya either. Truly free trade, they hope, would do much to

help their cause. But free trade is a two-way street, as they

are finding to their cost. Alan Guebert reports

A FAVOURITE expression among US farmers relates that everyone talks about the weather, but no one ever does anything about it.

A similar expression might describe the American attitude on free trade in global agriculture: While everyone talks about it, truly free, free trade seems as elusive as ever.

President Bill Clinton is the latest free trade talker. On Sept 16, Mr Clinton formally asked the US Congress to grant the White House near-total authority to negotiate multi-lateral and unilateral trade deals until 2005.

Mr Clintons requested authority – called Fast Track – will put the Presidents special trade representative Charlene Barshefky at the very centre of the 1999 World Trade Organisations mini-round of ag trade negotiations. It will also cover much-sought farm trade deals with APEC, the Asian Pacific Economic Cooperation group.

Farm groups of every stripe are pressuring Congress to approve Fast Track before it adjourns for the year in early November. All have special reasons for their strong support.

American wheat growers hope upcoming trade negotiations will weaken government trading enterprises like the Australian and Canadian Wheat Boards. Hard-pressed dairymen want Fast Track to loosen what they perceive as New Zealands unfair stranglehold on the world dairy market.

Likewise, US cattle ranchers are itching to rope the European Communitys policy that fences out American hormone-fed beef imports.

Soya bean growers – and maize producers – view Fast Track as their best, sharpest axe to cut through the growing global thicket of non-tariff barriers facing genetically altered crops.

So far, however, Fast Track is very slow going in Congress. In fact, doubt grows daily whether Congress will even take up the legislation before it adjourns – let alone pass it.

The centre of the battle is, as always, politics. And oddly, President Clintons allies, Congressional Democrats, are his fiercest opponents. They dislike Fast Track for two reasons.

First, Fast Track grants the President total control over any trade negotiation. Thats un-American, gripe Democrats, especially since Mr Clintons proposal leaves two pet topics – protection of American jobs and the global environment – out of Fast Track.

Secondly, if and when a trade deal is done, Fast Track requires Congress to either approve it or deny it on a straight up-or-down vote. Members are forbidden to alter one word of it.

Democrats are loathe to grant Mr Clinton – who, by law, cannot be re-elected – that right because any treaty could affect important voter constituencies like labour unions who they will answer to in the 1998 general election.

Most farm groups, however, have few qualms about Fast Track. They want it and they want it now. They liken it to NAFTA, the North American Free Trade Agreement, that went into effect Jan 1, 1994, between the US, Canada and Mexico.

NAFTA has increased cross-border ag trade with Canada, Americas biggest ag customer, and Mexico, the fourth most important ag market to US farmers. Since 1993, the last pre-NAFTA year, US ag exports to its north and south neighbours are up 31%. In 1996 alone, Canada imported a record £3.8bn of US ag goods; Mexico grabbed £3.4bn.

But that shiny coin has a second, darker side, notes the US Department of Agriculture in a just-released, comprehensive review of NAFTAs first three years.

According to the USDA study, US exports to Canada and Mexico increased from £5.6bn in 1993 to £7.2bn in 1996, a 31% boost. Ag exports from the two countries to the US, however, increased at an even greater rate, 44%; from £4.6bn to £6.6bn.

The data, suggest USDA, shows what free trade is really about: A two-way street in and out of the giant £4.7 trillion US economy. That means free trade creates winners as well as losers.

Additionally, the eye-opening USDA report shows a few other less-than-pleasant NAFTA trends for US farmers. One clear trend is that US farmers are losing ground to other North American farmers, despite the growth in ag trade.

In 1994, NAFTAs initial year, the US ag trade balance with Canada and Mexico was a positive £1.1bn. After the Mexican peso crashed in 1995, that trade balance plummeted to a negative £50m. While it rebounded back to a £600m surplus in 1996, USDA estimates the 1997 surplus will still be under 1994s benchmark.

Also, according to the USDA report, NAFTA "is responsible for a little more than 20% of the increase in US agricultural exports to Canada and Mexico since the agreement began. Slightly less than 20% of the increase in US agricultural imports from the two countries can be attributed to NAFTA".

In short: Ag trade between the three neighbours would have grown without NAFTA – just not as fast. That statement, backed up by USDA in the 125-page report, will sting American farm groups which strongly backed NAFTA, another Fast Track deal, when it was being negotiated because it was going to lift American farmers to a "new century of prosperity". USDA says that clearly has not happened.

Not yet, anyway. Given the NAFTA experience – more ag imports than exports, a declining ag trade surplus, and a very modest boost to a growth without the deal – American farmers might best be advised to go slow on Fast Track.

But there is another well-worn phrase in US agriculture: In any crowd, you can always tell who the farmers are – but you cannot tell them much.