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Trade agreements: Good and evil

10:56AM May 18, 2010
Some of the most heated arguments in dairy erupt over trade provisions and agreements, and yet many of these agreements are the reason why U.S. dairy exports have grown exponentially over the past decade.
Dairy economists from the Universities of Missouri and Wisconsin, as part of their 11-part series on dairy policy, point out the two-edged nature of these agreements. Changing prospects for U.S. exports began when the World Trade Organization's Agreement on Agriculture became effective in January 1995. It converted quotas and other non-tariff barriers to tariff rate quotas. In addition, the United States has entered into numerous free trade agreements with various countries.
What are the issues?
Market access. "U.S. dairy exports have benefitted from greater access to foreign markets with the WTO conversion of quotas and other non-tariff rate barriers to tariff rate quotas,” say economists Scott Brown (Missouri) and Ed Jesse (Wisconsin). At the same time, complaints have arisen over the absence of a tariff rate quota on milk protein concentrate (MPC), which essentially enters the U.S. duty free. A new Doha Round will likely require the U.S. to expand foreign access to its markets, but may also include the opportunity to include MPCs and other dairy proteins subject to tariff rate quotas.
Domestic support. The WTO agreement and the current Doha round of negotiations include reductions in domestic support levels. This "amber box” spending includes payments coupled to current production or those that set minimum prices that are higher than world market prices. Milk Income Loss Contract payments and the dairy price support program are examples. These programs might have to be altered to meet U.S. commitments, say Brown and Jesse.
Export subsidies. "A new agreement will likely set a timeline for elimination of export subsidies,” say the economist. This is potentially good news for U.S. producers, since the Europeans are currently allowed to subsidize far more than the United States.
Free Trade Agreements. The Organization for Economic Cooperation and Development (OECD) estimates that more than a third of world trade is covered by Free Trade Agreements between individual countries or groups of countries. "The North America Free Trade Agreement (NAFTA) has been a major benefit to U.S. dairy exports, with Mexico the largest market,” says Brown and Jesse. But the Australian free trade agreement could potentially increase U.S. dairy imports, and a proposed agreement with New Zealand has been vigorously opposed by U.S. dairy producer groups.
For the complete briefing paper, click here.