White, T. Kelley

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Research Papers in Economics

-DISCUSSION
POLICY DYNAMICS  IN NORTH AMERICAN AGRICULTURE
T. Kelley White
Senator  Lugar said  recently  in  commenting  on  the report of the Commission  on
International Trade, Development and Cooperation, "it is always fun to read something that
agrees with my biases".  That Tim Josling says little with which I can disagree  is comforting,
but at the same time it makes for difficulty in finding something meaningful to add in my
comments.
After providing the ambitious  objectives  of the paper and  a very useful conceptual
underpinning, the paper attempts definitions of three processes (harmonization, convergence
and compatibility) by which policies and programs affecting the agri-food sectors of  member
countries of Free Trade Agreements (specifically the members of  North American Free Trade
Agreement (NAFTA))  come together either in form or effect as a result of implementation
of  the agreement.  On first reading I must admit to coming away with the impression that the
differences were primarily semantic  in nature, maybe more confusing than enlightening and
that the remainder of  the paper could have been just as well written or read without worrying
about the terms or their definition.  After a second reading and a little thought, I think that
there  is  real  difference  and  that  the  distinctions  are  useful  in  differentiating  between
economic and political pressures shaping policy and for distinguishing between  form and
effect of policy instruments.
If  I understand the definitions, harmonization and convergence are processes by which
the policies,  instruments, rules and regulations of member countries  of a FTA come to be
similar.  Harmonization occurs through joint political decisions of the member countries to
adopt  common  policy  instruments  that are  sometimes  formulated  and administered  by
supranational  institutions.  Convergence,  on  the  other  hand,  occurs  through  political
decisions of the individual  countries in response  to pressures, largely economic  I believe,
growing out of the implementation of the agreement.  There is minimal, if any,  reliance on
supranational  institutions.  Convergence might be thought of as unintentional  harmonization
and harmonization  as intentional convergence.
Compatibility  is the process  by  which  conflicting  effects  of national  policies  are
reduced or eliminated but not necessarily  by adopting the same or similar policy instruments.
Tim notes that compatibility has the disadvantage  of lacking visibility-  I wonder if that22  Proceedings
isn't an advantage  instead of a disadvantage.  It may be a problem  for economists who are
trying to classify policies  as being compatible or incompatible,  but if they are incompatible,
we will  find out before too long and the  advantage  is that compatible  policies are  off  the
political  radar  screen.  One  disadvantage  may  be  that  by  not  being  able  to  identify
incompatible policies until there is conflict, the solution is forced into the conflict resolution
rather than the conflict avoidance arena.  Conflict resolution is by nature adversarial  and the
conflict  likely to be settled  on legal and political  grounds while conflict avoidance  can be
cooperative  and  there  is a  better chance  of reaching  a settlement  on  economic  efficiency
grounds.
The middle part of the paper is a very interesting  discussion of the issues raised by
implementation  of the NAFTA  and  World  Trade  Organization  (WTO)  by  the  NAFTA
member countries with the discussion organized  under the three processes.  One of the real
contributions of this part of the paper is that it is both backward  and forward  looking  and
thereby  succeeds  in  defining  the  trade policy  agenda  for  the  United  States,  Canada  and
Mexico within the context of the further implementation  of NAFTA and of the mini-round
in the WTO.
HARMONIZATION
The discussion of  harmonization  deals primarily with the issue of  national sovereignty
and  differences  in  attitude  (or conditions)  in  Europe and  the  North  American  countries,
especially the United States and Canada, as explaining why the former chose harmonization
while the latter chose convergence  as processes for implementation of FTAs.  I have nothing
to add to this discussion except one thought that occurred on reading this section, that is that
sovereignty, like beauty, is in some  sense in the eye of the beholder.  Opening borders and
integrating  markets, whether  financial  or goods, reduces the ability of nations to control the
behavior of the opened market through national policies.  Politicians sometimes seem not to
mind (or maybe not to recognize)  the loss of sovereignty  (ability to exercise control over the
sector) so long  as they have the "sovereignty"  to pass laws or impose policies  intended to
control.  The U.S. Congress doesn't seem nearly as concerned with the loss of control  over
the financial sector as it is to be told that the  WTO does not allow it to impose a ban on the
importation  of tuna caught with a certain type of net.
CONVERGENCE
The discussion of the convergence  process and related issues does an excellent job of
organizing  most of the issues that have been,  are  being,  and will likely  be confronted by
NAFTA.  It is for this reason that I first thought that the paper would have been just as useful
22 ProceedingsWhite  23
and easier to read had Tim just skipped over the attempt to define the three processes.  This
section did stimulate a few reactions that might add to the discussion.
The  discussion,  even  within  the  section  on  internal  pressures  for  convergence,
sometimes seems to assume that open markets exist and talks about the pressures these open
markets  exert on  internal  domestic  policies  to  converge.  At other  times the focus  is  on
pressures, internal  or external,  for convergence  of trade or border policies  i.e., the process
of integration.  What seems to receive little or no attention are the kinds of pressures exerted
for convergence of internal domestic policies by the continuing process of convergence  of
border policies.  In other words does the process  of opening borders exert the same kinds
of pressures  on internal policies as does the existence of open borders?
In discussing the unlikeliness of  governments giving up all sectoral policies, the paper
concludes,  "In practice the question is how to constrain policies that give a marked incentive
to expand the production,  or reduce the consumption,  of a product of export interest  to a
trading  partner."  In practice,  this  is probably  the  question.  But doesn't  restricting  the
question  to  the  interest  of  the  export  interest  of  the  trading  partner  reflect  the
producer/exporter  bias of trade policy negotiations  and analysis?  Why aren't the consumer
interests  of importing trading partners  of just as much importance?  Why did the Uruguay
Round  deal  almost exclusively  with those policies that  distort export supply upward  and
import demand and  world prices downward?  Why are export subsidies bad and export taxes
not?
In discussing the reluctance of countries to give up their "cherished institutions"  such
as national and state/provincial  marketing boards, the conclusion  seems to be that the FTA
will weaken their power and that accommodation will be found to avoid conflict.  If this is
true and it results over time in defanging these institutions, won't their reason for being and
their political support erode and won't they eventually either disappear or become irrelevant?
The discussion of wholly  or partially decoupled  programs  raises  a question  about
"payments per hectare".  Isn't the relevant question not whether payments are made on a per-
unit-of-land basis, but what requirements  affecting the use of the land entitle the owner of
the land to receive the payment?
COMPATIBILITY
This  discussion  emphasizes  the  important  role  that compensation  and  transition
payments can make to reducing the resistance to trade liberalization  and policy reform.  The
historical failure of the U.S. to effectively use such payments exposes the Congress and the
Executive to unnecessary political pressure to make accommodations  that are much more
costly in both the  long and short term than necessary.
The final paragraph of  the discussion of the  international dimension of compatibility
makes what may be the most important conclusion of the paper -- "there are no longer clear
White 2324  Proceedings
distinctions between domestic and trade policies, nor between regional and multilateral trade
processes.  It may not matter much what is the  order of policy  actions, the forum in which
agreement  is reached, or the label  under which the action  is taken".  The lack of distinction
between domestic and trade policies came to be widely understood  and accepted during the
Uruguay Round.  I was not aware that the substitutability of regional  and multilateral trade
processes was so well accepted.  It agrees with my biases and, if true, gives much more cause
for optimism that progress is being made toward more open and efficient world markets.

DISCUSSION: POLICY DYNAMICS IN NORTH AMERICAN AGRICULTURE

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