NAFTA, GATT, AND AGRICULTURE IN THE NORTHERN ROCKIES AND GREAT PLAINS

Abstract

Over the past seven years, the U.S. government has been involved in trade negotiations that have led to one bilateral and two multilateral agreements whose provisions have substantive implications for U.S. agricultural trade. The first of these sets of trade negotiations led to the bilateral Canada-United States Free Trade Agreement (CFTA). The second resulted in the current multilateral General Agreement on Tariffs and Trade (GATT) which was implemented on January 1, 1995. The third set of negotiations, initiated under the Bush Administration, led to the multilateral North American Free Trade Agreement (NAFTA), which was approved by Congress in November 1993 and implemented on January 1, 1994. The three agreements signed by the U.S. since the late 1980's have been substantively different from most previous agreements because each explicitly addressed trade in agricultural commodities. The result has been that, to a greater or lesser degree, CFTA, NAFTA, and GATT have altered or will alter the structure and behavior of world and domestic markets for agricultural commodities. These commodities include wheat and barley, sugar, and cattle and beef products; such changes are of importance to many Montana producers. The purpose of this report is to provide a detailed description of the agricultural provisions of NAFTA and the recent GATT agreement for wheat, barley, sugar, and cattle and boxed beef, and to discuss possible implications for producers of these commodities. The report does not investigate the consequences of the CFTA. The report begins by describing the general nature of these types of agreements. Brief histories and descriptions of the provisions of NAFTA and GATT are presented as well as overviews of the general agricultural provisions of the two agreements. The final section contains more detailed discussions of the provisions and implications of the agreements that directly relate to wheat, barley, sugar, and livestock products. The author concludes that for U.S. wheat producers, the consequences of both NAFTA and GATT appear to be favorable. Due to NAFTA, Mexican imports of U.S. wheat are likely to rise moderately. How NAFTA will impact U.S. and Canadian competition for the Mexican wheat market is unclear. The implications of GATT for wheat are also modest but generally favorable. Some countries will reduce tariff rates for wheat over the implementation period and improve import access to domestic markets. These adjustments are likely to encourage slight increases in world demand for wheat exports that will provide modest benefits for U.S. wheat producers. Historically, Mexico has levied high tariffs and implemented quantity restrictions via import licensing arrangements for barley imports from Canada and the U.S. Under NAFTA, Mexico allocated an initial quota of 120,000 metric tons per year to U.S. barley producers. This duty-free quota will be increased to about 195,000 metric tons in 2004. Tariffs on over-quota imports will also be removed by 2004. U.S. and Canadian barley producers are likely to benefit from increased Mexican import demand. The implications of GATT for barley are modest but generally favorable. As with wheat, some countries will reduce tariff rates for barley over the implementation period and/or improve import access to domestic markets. These adjustments are also likely to encourage slight increases in world demand for barley exports, thereby benefitting U.S. barley producers. With respect to cattle and beef, under the NAFTA agreement, the U.S. and Mexico have simply exempted each other from their respective import quotas. Prior to NAFTA, Mexico did not impose tariffs on live cattle or beef imports but did levy a small tariff on imports of edible offal. This tariff will be phased out by 2003. The U.S. also abolished modest tariffs on imports of Mexican fresh, chilled, and frozen beef, and imported feed and feeder cattle. Under the GATT agreement, several major beef-producing countries made commitments to reduce trade restrictions and internal supports. The U.S. has agreed to increase access at a low rate of duty and to reduce tariffs on over-quota imports by 15 percent by the year 2000. Some beef-importing countries such as Japan and South Korea have agreed to reduce tariffs and subsidies for domestic producers. The Trade Research Center is sponsoring research to analyze the impact of changes on U.S. beef prices due to GATT and NAFTA. Upcoming publications will discuss that issue. Under NAFTA, trade in sugar and sugar-containing products is subject to extensive provisions. Gradually, over the transition period 1994-2009, Mexico's access to the U.S. market will be expanded to a quota of 250,000 metric tons, if Mexico becomes a net surplus producer. These trade policy adjustments are likely to have minimal effects on the U.S. sugar industry over the first six years of the fifteen-year transition period, but their long-run effects are likely to be much more substantial. The GATT agreement contained only small changes for U.S. sugar policy and is not expected to have much impact on the U.S. sugar market. This special report contains a detailed description of the agricultural provisions of GATT and NAFTA that are of particular interest to producers in the Northern Plains and Rockies. The Center is sponsoring research projects to analyze the economic impacts of these trade agreements on the economy of the region.NAFTA, GATT, agriculture, Agricultural and Food Policy, Q1, F1,